David A. RosenbergFebruary 5, 2010
Chief Economist & Strategist Economic Commentarydrosenberg@gluskinsheff.com+ 1 416 681 8919
MARKET MUSINGS & DATA DECIPHERING
Lunch with Dave
WHAT EVER HAPPENED TO MEN AT WORK?
• Income theme is intact —equity mutual funds saw anet outflow of $370mln inthe final week of January,while bond bondsreceived another $7.5blninflow• Unbelievable productivitydata out of the U.S.A.• Employment conditions inthe U.S. is still sluggish —take a look at the initial jobless claims data• Mixed news on the retailfront — estimates onJanuary same-store salesare all over the map• Not everything is bearish— yes, the outlook forbusiness spending in theU.S. has improved• Canadian jobs report —upside surprise on theheadline, but details werenot that great• A technically-drivenmarket — yesterday’ssharp and broadly baseddecline in the equitymarkets was the worstwe’ve seen since April 20of last year• U.S. employment report —what ever happened tomen at work?
IN THIS ISSUE
In the overall scheme of things, considering the intense fiscal problems inEuroland, the prospect of sovereign debt defaults and the future of the regionalmonetary union, today’s U.S. payroll report is really a secondary event. Theheadline payroll result was below expected at -20k (consensus was +20k) andthere were downward revisions of 930k to the back data (April 2008 to March2009) from the much-anticipated benchmark revisions.To put the -20k headline payroll result into perspective, history shows us thatwhat is normal is that fully 24 months after a recession begins we are printing employment gains of 100k. In other words, labour market conditions can still bedescribed as being somewhat abnormal and fundamentally soft even if the paceof deterioration has abated.As we and others had been saying for so long, it was ludicrous for the Bureau of Labor Statistics to have been assuming that the economy was generating netnew jobs from business creation. As a result of the changes made to the ‘birth-death’ model, we had downward revisions in four of the prior five months(totalling 245k — for example, December was revised to show a 150k lossversus the initial -85k print). Excluding the federal government hiring lastmonth, payrolls would have declined 53k. And, while the diffusion indices forprivate payrolls and manufacturing did improve, they do remain squarely below50, which suggests that the plurality of employers are still in the process of shedding labour, more than two years after the recession officially began.In what good news there was, factory payrolls rose 11k, the first increase inthree years (the fact that Canada lost 15,700 manufacturing jobs may indeedattest to the view that we have some degree of overvaluation in the Canadiandollar to correct and vice versa for the greenback). Temp agency employmentrose a further 52k on top of a 59k increase in December and this is widelyviewed as a leading indicator for future employment.As for the workweek, another leading indicator, it rose to 33.3 hours in Januaryfrom 33.2 hours — the index of aggregate hours worked rose a healthy 0.3%MoM. It does look like the personal sector did squeeze out some decent incomegrowth as well, which may account for the better tone in the retail sales surveysthat just came out for January. Indeed, employment in this sector rebounded42k last month and average hourly earnings eked out a 0.3% MoM gain, andonce the expanded workweek is tacked on, average weekly earnings jumped0.6%. Not only that, but the factory workweek, along with the higher number of manufacturing workers, rose 0.5% MoM so expect to see a pretty good industrialproduction number (out on February 17) — validating the jump we saw in theISM manufacturing index.
Please see important disclosures at the end of this document.
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