Jobs Report Favors Romney
Last evening, after President Obama gave his speech to the Democratic Party delegates in Charlotte, pundits speculated about how long a post party high might last, and what could kill it as quickly as today. The main suspect likely to assault the electorate mood was the monthly Employment Situation Report, which was just reported this morning at 8:30 AM EDT. In my view, the jobs report reflects a deteriorating economy and thereby favors Mitt Romney.
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Some will key on the two-tenths of a point improvement in the unemployment rate to 8.1%, from 8.3% last month, but such reports should be quickly overcome by the realization that labor participation, not job creation, played the key role there. Stock futures turned lower at the breaking of the news, but it may take some time for the real message of the report to be understood; the SPDR S&P 500 ETF (NYSE: SPY) is fractionally higher at the hour of publishing here, while the Dow Jones Industrial Average ETF (NYSE: DIA) is less enthused due to the details of the data discussed below. The NASDAQ also has the earnings warning of Intel (Nasdaq: INTC) to digest this morning, and so the PowerShares QQQ (Nasdaq: QQQ) is sinking. But what is holding up stocks generally today is the increased likelihood of Federal Reserve action later this month. What is gaining ground today is gold against the dollar, as the SPDR Gold Shares (NYSE: GLD) gains 1.6% into early trade.
Job creation, depicted by a 96,000 net increase in nonfarm payrolls, came in under July’s revised rate of 141K (from 163K) and the economists’ consensus for 125K. Within the overall figure, private nonfarm payrolls only rose by 103K, versus July’s revised figure of 162K (from 172K). Take note of the direction of the revisions as well as the disappointment produced by the figures for August.
Debunking the unemployment rate was not hard to do this morning, despite the details of the report showing the number of unemployed Americans was down by 250K in August, to 12.54 million. Rather, the Household Survey shows the civilian labor force dropped sharply by 368K in August, even as the population was estimated higher by 212K. The same survey showed the number of employed Americans was down by 119K. Clearly, a big chunk of that improvement in the unemployed (if not all of it) was due to the continued drop-off of the long-term unemployed out of the labor force, not because people got jobs. Otherwise, the number of employed Americans should have risen.
As we look deeper into the data, we see that the number of long-term unemployed Americans (27 weeks of joblessness or more) decreased by 152K in August. There is a huge segment of the American population that is simply being lost into limbo. Who knows where they go, perhaps to homelessness, to prison, hospitals of one sort or another, to other parts of the world, or into their parents’ basements to drift into deep depression. Maybe a few are starting small businesses, self-publishing books, or earning income off the books in one way or another, but it’s clear that the majority are not faring well enough.
Some are working part-time instead of full-time, as the number of part-timers for economic reasons (meaning they want more hours) decreased by 215K in August, to 8.03 million. The number of those who have chosen part-time work (some of these likely didn’t understand the survey question) rose by 130K. I say that because school just started, and I believe less young people are likely to seek part-time work when attending school, though some returning from long vacations may be seeking work. Perhaps in today’s economy, a greater number of young people are finding resources from home harder to come by, and must therefore work while earning their degree.
The number of Americans marginally attached to the labor force, meaning they did not aggressively seek work over the last four weeks, increased by 32K. Within this segment, the number of discouraged workers, or those people who believe there are no more jobs available for them any longer, decreased slightly by 8,000.
Under-Employment Rate
The calculation of the under-employment rate, which takes into account the number of Americans working part-time for economic reasons and the detached workforce, follows here. If we add back the excluded 2.561 million displaced workers to the labor market, and include the 8.031 million underemployed part-timers in the unemployed count, adjusted unemployment reaches ((12.544M + 2.561M + 8.031M) / (154.645M + 2.561M)) * 100 = 14.7%. Last month, the rate was ((12.794M + 2.529M + 8.246M) / (155.013M + 2.529M)) * 100 = 15.0%. Don’t be fooled by what looks like an improved rate of underemployment to go along with the gain in the unemployment rate, because this figure, like the other, leaves out the unexplained decrease in the civilian workforce. Where have those unaccounted for Americans gone? Please tell me if you know, because they are not in this tally.
The details of the Establishment Survey show total private (not including public sector) jobs increased by a net 103K in August. That was significantly under ADP’s estimate for 201K, which helped support the stock market Thursday. It was likewise inconsistent with the decline in Challenger’s Monthly Job-Cuts data. What it did reflect, was something I’ve been warning about, a decrease in manufacturing employment. That segment of the economy dropped 15K jobs in August, and while jobs are not being shed by Boeing (NYSE: BA) as yet, layoffs are increasingly being considered at cyclicals like General Electric (NYSE: GE), Caterpillar (NYSE: CAT) and Cummins (NYSE: CMI). The entire goods-producing segment of the economy shed 16K jobs, with most of those coming in durable goods. There was even a 7,500 drop at motor vehicle and parts makers like Ford (NYSE: F), General Motors (NYSE: GM) and Magna International (NYSE: MGA).
Private sector service providers added a net of 119K jobs in August, according to the survey. The majority of those came in Leisure & Hospitality (+34K), Professional & Business Services (+28K) and in Healthcare & Social Assistance (+21.7K). Services declines were only found in Temporary Help (-4.9K), which marked a reversal of recent months and was bad news for Kelly Services (Nasdaq: KELYA) today.
The Retail Trade industry added 6.1K jobs in August, I expect due to increases at discounters like Wal-Mart (NYSE: WMT), Target (NYSE: TGT) and Costco (Nasdaq: COST), at the cost of underperformers like J.C. Penney (NYSE: JCP) and Sears (Nasdaq: SHLD). Information only added 3,000 jobs in August; so much for the impact of the Internet newcomers like Facebook (NYSE: FB) and Yelp (Nasdaq: YELP). The public sector shed 7,000 jobs in August, down from 21K in July and 18K in June.
On net, I think there’s no doubting that this report favors Mitt Romney, because when the workforce change is understood, it reflects a deteriorating economy. I expect these reports are going to get worse in the next two months ahead of the election. The Democrats will focus on the unemployment rate today, but I expect the Republicans will not have to explain that anomaly as the months progress and the economy deteriorates further.
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