Week Ahead: Labor Market Has Work to Do
The US economy created far fewer jobs than expected in December – just 74,000, the smallest number since January 2011. The unemployment rate dropped to 6.7 percent, the lowest since October 2008, but the rate went down for the wrong reason - it was largely due to 347,000 would-be workers leaving the labor force. That pushed down the participation rate (the number of people actively looking for a job or employed) to a 35-year low of 62.8 percent. (As a point of reference, the participation was about 66-67 percent over the last 20 years. A large portion of the drop (as much as one-half to two-thirds) is attributable to demographics, i.e. Baby Boomers retiring). Considering that analysts were predicting 200,000 jobs created and that the participation would increase, you are not alone in asking, “What happened?”
Some economists noted that the big miss was due to unseasonably severe winter weather last month. The Bureau of Labor Statistics attempts to adjust its findings for seasonal factors. But since more snow fell than in a normal December, the adjustment may have lagged reality. The government’s household survey showed that 273,000 people reported not being able to work because of the weather in December, that’s well above the long-term average of 166,000 for the final month of each year. The folks at Capital Economics said, “It’s even possible that some people who couldn’t get to work were incorrectly recorded as unemployed rather than employed.”
Doubters contend that bad weather should not matter, because the government still counts workers as employed as long as they were paid for one day in the sample period, regardless of whether they turned up. Hard to say, but eyeballing the 16,000 decline in construction and the drop in average weekly hours worked, chances are that bad weather played some role. If that’s the case, then the next few months should show a pickup, as the chill from the Polar Vortex (and all other unnamed weather patterns) pass.
For now, the labor market still has work to do…
Now that the jobs report is behind us, it’s time for earnings season! Fourth quarter earnings for all S&P 500 companies are expected to rise by 6.1 percent, according to FactSet, compared to a 5.1 percent increase in the third quarter. Earnings estimates are down since September 30th, with the energy sector seeing the largest cut. It’s the financial sector that is expected to lead the way, with earnings expected to rise by over 20 percent.
On the economic calendar, December retail sales will provide a closer look at the holiday shopping season. Last week, ShopperTrak said that sales were up 2.7 percent from a year ago in brick-and-mortar stores, despite a steep drop in traffic, which fell 14.6 percent. Separately, low-end retailers Dollar Stores and Sears reported that their customers continue to struggle economically and as a result; the holiday season was a bust.
MARKETS:
- DJIA: 16,437, down 0.2% on week, down 0.8% YTD
- S&P 500: 1842, up 0.6% on week, down 0.3% YTD
- NASDAQ: 4174, up 1% on week, down 0.05% YTD
- 10-Year Treasury yield: 2.86% (from 2.99% a week ago)
- Feb Crude Oil: $92.72
- Feb Gold: $1246.90
- AAA Nat'l average price for gallon of regular Gas: $3.31 (from $3.31 a year ago)
THE WEEK AHEAD:
Mon 1/13:
Tues 1/14:
JPMorgan Chase, Wells Fargo
8:30 Retail Sales
8:30 Import/Export Prices
10:00 Business Inventories
Weds 1/15:
Bank of America
8:30 PPI
8:30 Empire State Manufacturing
2:00 Fed Beige Book
Thurs 1/16:
American Express, Citigroup, Goldman Sachs, Intel
8:30 Weekly Jobless Claims
8:30 CPI
10:00 Philadelphia Fed
Fri 1/17:
GE, Morgan Stanley
8:30 Housing Starts
9:15 Industrial Production
9:55 Consumer Sentiment
10:00 Job Openings and Labor Turnover Survey (JOLTS)
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