Stocks Weak, Job Market Strong


The first week of trading was the worst ever for the Dow (down 6.2 percent) and the S&P 500 (down 6 percent), but fear not: the U.S. economy is alive and well! Look no further than to the December jobs report, which came in stronger than expected. The economy added 292,000 jobs and the previous two months were revised higher, which made 2015 the second best year for job creation since the 1990’s. For all of the anxiety over markets and the global economy in 2015, there were 2.65 million jobs created, or a monthly average of 221,000, shy of the 2014 level of 260,000 per month, but solid nonetheless. The unemployment rate remained at 5 percent, the lowest level since the spring of 2008.

The top line results do not mean that all is perfect with the US employment landscape. Indeed, there are still stubborn problems that persist. For example, wages slid by a penny in December and it was only because December 2014 wages were so weak that the year over year increase came in at 2.5 percent. We’ll need to see 2016 data before understanding whether employers are paying more in compensation.

The number of long-term unemployed (those jobless for 27 weeks or more) was unchanged at a still-high 2.1 million in December and has shown little movement since June. Thankfully, there was improvement in the first half of the year, so the number of long term unemployed was down by 687,000 in 2015. It was a similar story for the 6 million part-time unemployed – there was little movement in December but over the year, their ranks shrank by 764,000.

The civilian labor force participation rate, which is the percentage of the working age population in the labor force, edged up in December to 62.6 percent, but too close to 40-year lows for anyone to feel good about it. While about half of the post-recession decline in the rate is due to demographics, the low level indicates that many Americans have left the labor force because they are frustrated.

What does this report tell us about the state of the US economy as we closed out 2015? Although growth is certainly not stellar—GDP likely advanced by 2.25 percent last year, matching the previous three years’ rate—it was strong enough to produce a slew of jobs in a variety of sectors. Annual gains were robust for in professional and business services (+605K), construction (+263K), health care (+480K), and food services and drinking places (+357K).

The weakest parts of the economy are those that are associated with energy and manufacturing. With crude oil down by over 30 percent in 2015, the mining industry lost 129,000 jobs during the year. And with the strength of the US dollar and weakness in Asian economies, manufacturing employment was little changed (+30,000), following strong growth in 2014 (+215,000).

A rotten first week for stocks notwithstanding, fears over the US economy falling over a cliff may be overblown. According to Capital Economics, while growth in the fourth quarter probably slowed to a pokey pace of 1 to 1.5 percent annualized, the stock market is a bit wobbly, the massive surge in employment in December illustrated that “there is no reason to believe that this is the start of a more serious downturn.”

MARKETS: Don’t look now, but the average stock in the S&P 500 is already in a bear market—down 22.6%, according to Bespoke Investment Group.

  • DJIA: 16,346 down 6.2% on week, down 6.2% YTD (8/24/15 low: 15,370)
  • S&P 500: 1,922 down 6% on week, down 6% YTD (8/24/15 low: 1867)
  • NASDAQ: 4,643 down 7.3% on week, up 7.3% YTD (8/24/15 low: 4292)
  • Russell 2000: 1121, down 7.9% on week, down 7.9% YTD, down 19.3 percent from June 2015 highs)
  • 10-Year Treasury yield: 2.12% (from 2.27% a week ago)
  • Feb Crude: $33.16, down 10.5% on week, lowest settle since Feb 2004
  • Feb Gold: $1,097.90, up 3.6% on week
  • AAA Nat'l avg. for gallon of reg. gas: $1.98 (from $2.00 wk ago, $2.17 a year ago)

THE WEEK AHEAD: No rest for the weary…after the bear took a bite out of investors last week, earnings season begins!

Mon 1/11: Alcoa

Tues 1/12:

10:00 Job Openings and Labor Turnover Survey

Weds 1/13:

2:00 Fed Beige Book

Thursday 1/14:

JP Morgan Chase

8:30 Import/Export Prices

Friday 1/15:

Wells Fargo

8:30 PPI

8:30 Retail Sales

8:30 Empire State Manufacturing Index

9:15 Industrial Production

10:00 Consumer Sentiment