Anthony Hood
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com


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Friday, January 07, 2011


Dec unemployment rate fell from 9.8% to 9.4%, a huge decline, but an anomaly and should be ignored. Non-farm jobs were less than thought, up 103K overall on unsettled forecasts of +150K. Non-farm private jobs increased 113K against forecasts of +175K. Oct non-farm job growth revised from +170K to +210K, Nov revised from +39K to +71K. For all of 2010, the jobless rate averaged 9.6%, the highest since 1983 and up from 9.3% a year earlier. With today’s report, the Labor Department revised figures from its household survey used in calculating the unemployment rate going back five years.

Manufacturing payrolls rose by 10,000 in December. Economists had projected an increase of 5,000. Employment at service-providers increased 105,000. The number of temporary workers rose 16,000. Construction companies reduced payrolls by 16,000 and retailers added 12,000 workers. Government payrolls decreased by 10,000. State and local governments reduced employment by 20,000, while the federal government added 10,000 jobs.

The Dec report on employment was disappointing, particularly when compared to that blowout ADP report on Wed that said 297K jobs had been added. We noted on Wed that the ADP report included 5 weeks of data compared to the normal four weeks and likely had a lot of temp workers included. Today's BLS report was in line with forecasts prior to the ADP that caused analysts to revise their estimates higher.

The bond and stock markets' initial reaction was subdued and somewhat confusing to traders. The decline in the unemployment rate is a definite anomaly that will not likely last when we get Jan data; if a respondent to the household survey that is used to calculate unemployment says he (she) is not looking for a job that person is not considered unemployed even if they say they are. No one took the decline in the rate of unemployment seriously. Most focus on actual job growth; the revisions are always of more interest and today an additional 70K were added with revisions to Oct and Nov. When the revisions are taken into account with the Dec expectations the three months are generally in line with what totals over the months had been.

The reaction in the bond market isn't much so far; the mortgage markets holding slight gains in prices while the 10 yr rallied initially by 9:15 the note was back to unchanged. The stock indexes initially fell then rebounded to trade about unchanged leading into the 9:30 open (see below for 10:00 levels).

Unemployment continues to drag on the economy, at the rate of recent hiring over the last three months it isn't nearly enough to move the economic recovery up to meet the present lofty 4.0% GDP growth forecasts for 2011. Markets however continued to be supported by the strong holiday shopping even though retails also didn't actually meet expectations, sales were strong but missed the targets. As we have noted, the economy is improving but we are still willing to wait until we see Jan data before we completely get aboard the growth train. Housing still a huge drag, consumer spending was better in Dec but most all of the strong sales came at high end stores like Nordstrom's and Saks; the more main stream stores like GAP, Kohl's, Macy's and Target did not meet analysts' forecasts. The wealthier spent, middle America held back some.

The takeaway form the Dec employment report didn't change anyone's' mind on the economic outlook; the bullish outlook holds while some of us skeptics were not satiated with less job growth. We are not bearish about the economic recovery in 2011, we are however willing to wait for more evidence to get on board. IN the meantime the interest rate markets are equally skeptical, not climbing in yields but not declining either.

Bernanke is testifying at the Capitol, nothing new so far.

At 3:00 this afternoon Nov consumer credit data; markets don't usually react to it but to us it is a very important data point measuring consumers penchant for debt. Estimates are for a slight decline. Credit has collapsed over $376B over the last four months although the data doesn't reflect it because in one of those slight of hand things the Fed changed the game by moving student loans into revolving credit calculations that now distort actual consumer credit based on the headline numbers.