Market Talk

Warm reception for the improvement in the March jobs report, and Dow Indutrials surge to a 2011 high. Good to see 216,000 jobs added, unemployment rate down a tick, but the report wasn’t without its flaws.

Labor force participation remains stuck at a low 64.2%, until recently a level last seen in 1982. Average hourly earnings for private employers actually fell 2c to $19.30 (though weekly pay ticked up). The number of long-term unemployed (out of work more than six months) rose, and now accounts for 45.5% of 13.5M out of work.

The stagnant wages may be the biggest drawback to this report. As Paul Ashworth at Capital Economics notes, job growth still isn’t strong enough to bring the unemployment rate down quickly, and if it only drops 0.1% per month, as it did in March, “it would take another three and a half years to get back down to the pre-recession level.” The still-high rate continues to tamp down wage inflation, with overall average hourly earnings flat for second-straight month, and annual growth rate remained at 1.7%, Ashworth points out. “In real terms, wages are falling.”

There was also a drop in the U-6 measure of underemployment, looks as if there’s fewer “discouraged” workers out there. However, based on the participation rate, it doesn’t look as if they all went from discouraged to back in the labor force, so it makes you wonder how many are just slipping off the radar screen altogether.

- Financial stocks have hit bear market territory, while materials, energy, industrials and consumer discretionaries are getting close. “Unsurprisingly, it’s the defensive sectors that have held up the best since the market peaked on April 23rd, if declines of 9% to 14% can be characterized as holding up,” Bespoke says.

- It’s tough to ignore the increasing deflation risks filtering through the market. “The sure-fire economic solution to the mounting deflationary risk is a strong and sustained rebound in job growth,” James Picerno says at The Capital Spectator. “Unfortunately, the odds look high for a jobless recovery at the moment, thus the market’s outlook for a new round of disinflation, perhaps outright deflation.”

- All the bailout money that was dished out to the banking sector simply allowed the financial sector to avoid a vast restructuring. “The can was kicked down the road,” Barry Ritholtz writes, noting banks weren’t allowed to suffer the same destiny that happens to other insolvent businesses. “This was a terrible error, the greatest financial tragedy of the 21st century.”

- Despite the widespread opinion that double-dips are rare, data and indicators are warning that one is coming, John Hussman of Hussman Funds points out. His own firm’s recession warning composite is showing the same combination of factors that appeared in November 2007 and October 2000.

- ISM’s non-manufacturing report shows service sector activity slowed last month. “In yet another sign the economy is cooling substantially, three components of the June Services ISM are now in contraction,” Mish says. “This report was weakest where it matters most: employment, imports and exports.”

- Yahoo’s still searching for an ad sales chief. “We’ll see how it turns out, but as Yahoo just closed its second quarter, it’ll be important for some clarity around its most important business in its most important market, especially as its stock continues to its lackluster performance,” Kara Swisher writes.

- The likelihood of a “double dip” recession may be low, according to economists, but as Catherine Rampell points out at NYT’s Economix blog, the general public still seems pretty worried. Google searches for “double dip” have soared this year, she notes, with a specific spike beginning in May.

- Out of all the long-term unemployed, the older, more educated workers have the highest length of unemployment, Calculated Risk reports, citing BLS data.

- AgBank IPO totals $19.21 billion, still in the running for the biggest IPO ever.

- Brian Cashman says LeBron is going to be a Knick. Keep your fingers crossed. Oh yea, and LeBron starts a Twitter account today, tweets ONCE and has 114,000 followers and counting. Hey LeBron, how about throwing Market Talk some of your followers, eh?

- BofA, Citi, JPMorgan and Goldman Sachs all racked up perfect trading quarters in 1Q, but the Kid Dynamite blogger is less than impressed with the ensuing analysis. “See, the probability of winning when your cost of funds is near zero and you can invest at positive interest rates at assets which are already being supported by the Government is probably closer to 100% than 50%.”

- “It’s no wonder that Goldman Sachs–perhaps the largest market maker in the world–consecutively avoids trading losses quarter after quarter,” FT’s Alphaville blog says. “That’s because when you’re making markets with no obligation to do so, you are in complete control. You dictate the terms. It’s very hard to lose.”

- EU’s nearly $1T bailout package stabilized Europe’s stock and bond markets this week, but hasn’t done much for the sliding euro.

- The online advertising business is improving from its dismal
performance a year ago, but how much of an improvement is tough to quantify.

- Paul Volcker’s candidness is undermining Obama. “It’s one thing for people in the private sector to express negative views about the future on the Eurozone, quite another for someone of Volcker’s stature who is playing a policy role for the Administration to undermine an initiative deemed so important that the President has thrown its weight behind it,” Yves Smith says.

- The number of people considered long-term unemployed sits at its highest level on record even as the economy has experienced four-straight months of net payroll growth. “Think about what that means: The new jobs that have been created so far seem to be going disproportionately to people out of work for only a short period,” Catherine Rampell writes.

- NBC canceling Law and Order could mean 8,000 people will join the unemployed ranks.

- Bespoke compiles a list of companies whose stocks have performed well on their earnings release days, but then declined the most since then. Topping the list, First Solar (FSLR) which rose 18% after posting earnings April 28, but since has dropped 20%.

- Well, that experiment didn’t last long. Google plans to stop selling its Nexus One on the Web.

- The summer of LeBron officially starts now. Mayor Bloomberg says he’ll give LeBron a “big sales pitch” to come to NY, but President Obama hopes the King goes to Chicago. LeBron, you can guest post here at Market Talk anytime you’d like if you become a Knickerbocker.

- Barry Ritholtz breaks down the pros and cons of today’s jobs report.

- It’s going to be hard to climb out of long-term jobless pit. Average length of time jobless folks have been out of work hit record-high 31.2 weeks last month. And the longer they stay unemployed “the worse their chances of finding work become – either because their skills become stale and dated, or because they are stigmatized by the giant hole in their resumes,” NYT’s Economix says.

- Job report’s a step in right direction, but doesn’t represent a “robust return to full employment,” Mark Thoma says. “My expectation is that job growth will be frustratingly slow, but just positive enough to keep our hopes alive.”

- Spike in involuntary part-timers puts damper on jobs report. Number of workers only able to find part-time jobs (or have had their hours cut for economic reasons) “increased sharply to 9.1 million in March,” Calculated Risk notes, from just under 8.8 million in February and 8.3 million in January.

- “What does seem clear is that the pace of net job creation is still well below the levels required to appreciably improve the unemployment rate or to make a sizable step toward regaining the eight million-plus jobs lost since the beginning of the recession,” David Altig writes at Atlanta Fed’s macroblog.

- “All in all, the [jobs] report appears to be of the ‘ugly Goldilocks’ sort – not too hot and not too cold, but just ugly enough under the surface to keep the liquidity pumps fully primed,” Pragmatic Capitalist says.

- Don’t count on lots of free TV on the iPad, Peter Kafka reports. Disney’s (DIS) ABC is the only one of the four major TV networks putting a decent amount of programming on the iPad in time for tomorrow’s launch.

- ISuppli expects Apple (AAPL) to ship 7.1M iPads this year, 14.4M in 2011 and 20.1M in 2012. “Suffice it to say, these scenarios are far more bullish than the ones we’ve heard to date,” Digital Daily blogger John Paczkowski says. “Which is ironic given that iSuppli describes them as ‘conservative.’”

- As sweet as the iPad looks, some question the device’s true purpose and whether it’s worth the price.

- Old media’s expecting too much from iPad, MarketWatch’s John Dvorak says.

NYT’s Floyd Norris tries to make the point this morning that the February nonfarm payroll report provided some “surprisingly strong jobs figures.”

Before we blast that idea out of the water, let’s consider his argument for a second:

1. The decline in overall employment, of 36,000, was almost certainly caused by the weather. As I have noted before, there were two sets of blizzards in the East to affect employment in the week the survey covered. The “real” number almost certainly was positive, and we are set up for a good gain next month.

2. Similarly, the fact the unemployment rate stayed steady at 9.7 percent indicates it is likely to fall next month, absent the weather effects.

As Paul just detailed, it’s difficult to determine what kind of impact last month’s snow storms had on this report. The BLS even said it’s impossible to quantify the sever winter weather’s effect on the data.

Market observers, including Norris, point to the 1996 blizzard that rocked the east coast and had a major impact on the January 1996 jobs report. Initial reading showed 200,000 jobs were lost that month, with the snow getting much of the blame. The economy then added 700,000 jobs in February 1996, proving the one-month drop was merely a minor blip.

Some folks see the same pattern playing out now and expect the economy to show substantial job growth in March. But let’s keep in mind that the current economy is in a much different place now than it was in early 1996. Comparing January 1996 to February 2010 is an apples to oranges comparison, to say the least.

We’d like to remind Mr. Norris that the economy in 1996 was already several years past the early-1990s recession. The Internet was just starting to take off and the economy was on the cusp of a historic growth spurt (followed by a historic bust.)

Anyone that thinks we’re in the same position today needs a healthy dose of reality. And as Paul just quipped in the newsroom a few minutes ago: “Unless there’s a new World Wide Web on the horizon, you can’t compare the two economies.”

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The long-term unemployed

Well, it’s over, right? The July jobs report is out, and it’s better than all but the most bullish expected. The number of workers who lost jobs in July was about half the number in June.

To be sure, that is good news. But, well, we’re journalists, and we just can’t help but be skeptical. If you want sunny optimism, you’ll have to go somewhere else.

As John pointed out earlier, a key metric to look at is the long-term unemployed. That figure, the number of people out of work for more than 27 weeks, has jumped sharply. It rose by 584,000 to 5M, and stands at 33.8%, about one in every three unemployed.  That’s up from 19% last July and 24% in March.

So while it’s a good thing that the pace of firing is slowing down, it doesn’t seem like the pace of hiring is picking up.

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