Market Talk

Job creation remains tepid at best, as evidenced by ADP’s report showing only 42,000 private-sector jobs were added in July. But that may be the best news for investors, right now.

A surprisingly strong monthly jobs report on Friday might bring about calls that the economy’s recovering better than most expected. Optimists will seize on this and say the Fed should start thinking about tightening rather than loosening monetary policy, not exactly the best medicine for the stock market. On the flip side, an extremely weak jobs report will bring all the double-dip callers back to center stage, which also isn’t good for stocks.

But a July jobs report that’s not too good, but not too bad, may be the best medicine for the stock market, which remains flat year-to date, as the current trading environment of record corporate profits and near-zero interest rates would stay intact for the foreseeable future.

It’s easy to glean evidence from this morning’s ADP report to estimate what Friday’s jobs data will look like. Unfortunately, there’s not much to be positive about. From Dow Jones’ Kathleen Madigan (subscription required):

Weak labor markets remain an obstacle to a recovery. Private payroll gains increased by only 42,000 in July, as large businesses added no new workers, according to data released Wednesday.

July’s private-sector job gain was the sixth consecutive increase, according to a national employment report published by payroll giant Automatic Data Processing Inc. (ADP) and consultancy Macroeconomic Advisers. But the pace of hiring has averaged only 37,000 during those six months.

“Firings have stopped but strong hiring is not yet happening,” said Joel Prakken, chairman of Macroeconomic Advisers, which compiles the survey for ADP. “There is no sign of acceleration [in hiring].”

Where we go from here is a big mystery. But if the jobless claims throughout the last year or so are any indication, the labor market’s likely to linger around limited growth for the time being.

“It’s easy to think that more of the same is on tap for the foreseeable future,” James Picerno writes at The Capital Spectator, which means the jobs market is still vulnerable to a significant setback.

For Friday’s jobs report, economists are expecting 100,000 private-sector jobs added. “That’s better, but not enough to blow fears of the new normal,” Picerno says. “Of course, the possibility for a positive surprise of some magnitude keeps the bulls bubbling.

“Technically, the labor market is improving. But the margin of safety between growth and contraction is still uncomfortably thin.”

I just feel like we're not going anywhere, you know what I mean?

US stocks enjoying a fierce run-up on the heels of yesterday’s triple-digit decline, highlighting a theory Todd Harrison pointed to this morning that the market’s initial reaction following a Fed meeting, or in this case testimony, is often the false move.

A slew of corporate earnings and a better-than-expected data on existing home sales are fueling the rally, which recently sent the Dow up 220 at 10340. But a disappointing jobless claims report, which is largely getting overshadowed amid today’s run-up, deserves more attention.

The number of workers filing initial claims for jobless benefits rose 37,000 to 464,000 in the week ended July 17, marking the biggest weekly rise since February.

So much for the recent positive momentum in jobless claims. They had dropped the prior two weeks in a row and hit 429,000, their lowest level since August 2008. But the latest run-up — new filings surging 37,000 marks the biggest weekly rise since February — takes the unemployment measure back above 450,000.

“Even if today’s rise in jobless benefits doesn’t mean much, there’s still the bigger problem that’s plagued this metric all year: It’s going nowhere fast,” James Picerno writes at The Capital Spectator. “As the weeks and months roll by without a material decline in new filings for unemployment insurance, it’s getting tougher to argue that the labor market’s salvation is just around the corner.”

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The news isn’t pretty on the labor front, and it doesn’t look like it’s getting better anytime soon.

The latest discouraging news comes from this morning’s report on initial jobless claims, which showed claims increased 12,000 to 472,000 in the week ended June 12, essentially returning to levels last seen in the middle of last month. Economists were expecting claims to fall by 6,000.

Jobless claims continue to remain sluggish and have now been trending sideways since November.

“The sideways action isn’t unprecedented in post-recession periods, but the potential for trouble this time is substantially higher, given the unusually steep losses in nonfarm payrolls over the past two years,” James Picerno writes at The Capital Spectator.

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Abbondanza!

Worries about Greece and additional evidence of a troubled labor market hampered stocks this morning. The Dow fell as much as 53, on the heels of yesterday’s 72-point decline, suggesting profit-taking was setting in after this recent run-up.

And just as quickly as we started to digest the declines, stocks reversed course and now sit comfortably in positive territory. Strong same-store sales as well as optimism about the beginning of earnings season are being cited for the turnaround.

Hmm, weren’t those catalysts present early this morning? And unless I’m missing something, Greece’s problems haven’t been solved in a few hours and the weak labor market is, well, still weak.

Perhaps investors are merely ignoring external factors, while following a specific playbook. Buying the morning dips as well as going all-in on Friday afternoons in anticipation of Monday rallies has been the recipe for success in recent months, the Pragmatic Capitalist points out. And that’s exactly what’s taking place today.

“Apparently, the stock market has turned into an easy game,” Pragmatic Capitalist says. “Whether that is comforting or the absolute most frightening thing in the world is beyond my realm of knowledge, but history has proven that when one strategy or mindset starts to dominate it always breaks down in horrific fashion.”

Dow reversed earlier losses and was recently up 50.

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Pros outweigh cons in jobs report, but watch those long-term unemployed figures.

There’s a lot to like about today’s jobs data: Six-figure job growth (after two years of losses) has a nice ring to it.

Temp employment’s continued rise, average workweek up and positive revisions show the economy added jobs in three of the last five months all signal optimism about the recovering labor market.

But, as John pointed out, long-term unemployment remains the major sticking point that can’t get overlooked. Swelling ranks of long-term unemployed continues to put a greater burden on the labor market’s eventual recovery.

Labor Department reports nonfarm payrolls rose 162,000 in March, marking the largest gain in three years. The headline number fell short of the 200,000 gain economists were expecting. But considering only 48,000 of the jobs gained were Census workers, the nonfarm payroll report is actually better than it appears. Some observers expected Census to account for half the gain.

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Job growth? Time to bust out the Cubans

It’s never too early to start talking about monthly jobs data. So, with the March report due a week from tomorrow, we figured why not take a look at some of the labor market’s prospects leading up to this critical release.

Today’s reading on initial jobless claims offers a hint of optimism, although investors shouldn’t get too giddy over the data. New claims for jobless benefits dropped 14,000 to 442,000 in the week ended March 20. Previous week’s level was revised to 456,000 from 457,000. Economists had expected only a 7,000 decline to 450,000.

Keep in mind a few caveats come with this week’s release. Latest data reflects changes the Labor Department made as part of its annual revision to the methodology used to calculate claims. Had the revisions not been made, Labor said initial claims would have come in at 453,000 – not as good as 442,000, which still would’ve marked a small decline of 3,000 – but essentially a wash considering the noise that surrounds this data point.

Jobless claims creeping closer to the 400,000 mark is good news because that would likely signal job growth on a monthly basis. Also, aside from the first week in February, the 442,000 claims marks the lowest reading since this data point peaked in March 2009, James Picerno notes at The Capital Spectator.

“The best we can say is that the economy is no longer shedding jobs, at least not in significant numbers,” he says. “But we’re still waiting for signs that the economy can create jobs on a net basis for some period of time. So far, that critical point has yet to arrive.”

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Can't call it a recovery until you get me back to work, brotha.

A mixed bag of economic data is weighing on stocks this afternoon.

Durable good orders provided some cheery news, rising in February for a third consecutive month. But skeptics dive deeper into the details and find reasons to worry.

Karl Denninger at Market Ticker says he’s concerned about three-month trends in shipments and new orders in two areas: computers and communications equipment, which are essential tools for adding white-collar jobs.

He notes inventory building is occurring and good for GDP, but if new orders don’t draw down that inventory, “it will quickly turn into a significant earnings drain in forward quarters,” he says.

“If the trends I am seeing in the durables report continue…broad-based macro deterioration should be evident to even the most-hardened pump monkey by June or thereabouts,” Denninger says. “The road ahead may be materially rougher than you have been expecting.”

Of course the three-month winning streak for durable good orders is garnering all the headlines this morning, which creates some optimism about the industrial part of the economy.

But it’s still unclear “how soon the recuperating process will spill over into the labor market,” James Picerno writes at The Capital Spectator.

“Either the recovery in manufacturing helps nurture an expansion in job creation, or the weak labor market puts a lid on the incipient mending in the industrial sector,” he says. “Today’s news on durable goods, along with other positive signs, indicate there’s reason to stay optimistic in spite of the rough period of late in the labor market.”

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This picture still isn't getting any better.

The fact that jobless claims dropped by a higher-than-expected amount is prompting cheers that today’s data is an encouraging sign for the jobs market.

Fine – it is encouraging. But it’s still hard to be outright optimistic about the labor market when it continues to lose rather than add jobs on a regular basis, University of Oregon economics professor Mark Thoma says. Claims also remain significantly above the 400,000 level needed for the economy to start adding jobs.

“As long as claims remain above 400,000, we are still losing jobs overall and labor markets continue to deteriorate,” he says. “And even when claims do fall below 400,000 that won’t be the end of the labor market’s troubles. It will take quite awhile to for labor markets to reabsorb all the workers that want jobs.”

Jobless claims have been pretty volatile throughout the first two months of the year. Prior to today’s report, they had risen four out of the last five weeks. So today’s decline is a step in the right direction, but it’s still too early to tell whether the decline is sustainable.

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Three private reports on the labor market released earlier today point to more jobs lost last month. Optimists note the rate of loss continues to diminish, but another round of red ink on the jobs front is disconcerting, to say the least.

As Paul wrote earlier, ADP, Challenger Gray & Christmas and TrimTabs all expect February job losses to be less than economists were previously expecting. Fears that the east coast snowstorms would hurt the jobs data may have been overblown, although we won’t know the full extent of the damage until Friday’s jobs report.

Nevertheless, another month of job losses doesn’t bode well for this purported recovery.

“With each passing month of loss, the stakes are higher for the necessity of minting jobs,” James Picerno writes at The Capital Spectator, noting a negative number in February would mark job losses in 25 out of the last 26 months. “The real challenge isn’t one of simply seeing a net gain on the payrolls ledger. That’s coming, and perhaps soon.”

But a lengthy and sustainable stretch of hundreds of thousands of jobs added on a monthly basis is what the economy really needs. “Unfortunately, almost no one expects that’s imminent.” he adds.

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Hit us up when companies actually start hiring.

The economic calendar has been chock full of some depressing reports throughout the week, with initial jobless claims offering the latest troublesome data.

Weekly claims for jobless benefits rose by 22,000 to 496,000 in the week ended Feb. 20, marking their highest level since November. If that isn’t frustrating enough, it appears the downward momentum that claims experienced throughout most of the last year seems to be over, James Picerno points out at The Capital Spectator.

“The labor market is at a critical juncture,” he says. “The massive monthly losses in nonfarm payrolls have more or less faded. But net job creation in the private sector on a sustainable basis remains MIA.”

And the recent trend in jobless claims doesn’t offer much hope that job growth is on the horizon, especially since claims need to be closer to 400,000 for the economy to start adding jobs on a monthly basis.

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