U.S. Reaches a Milestone on Lost Jobs U.S. employers hired at a steady pace in March, moving past the labor market’s winter chill and putting the economy on firmer footing for the spring.
- Nonfarm payrolls rose a seasonally adjusted 192,000 in March and figures for the prior two months were revised up by a combined 37,000, the Labor Department said on Friday. The unemployment rate held steady at 6.7%.
- The private sector remained the engine of job growth, while government payrolls were flat, as firms cautiously recoup revenue and rebuild payrolls.
- the labor force participation rate, the share of the 16-and-over population with a job or looking for work, rose to 63.2% from 63% in February. That is still well below the 66% it was at when the recession began. To get back there, the labor force would need to expand by nearly seven million people, which would push unemployment to 10.7%.
- Still, almost all of the 503,000 people who re-entered the job market in March found work. Another measure of the labor force, the ratio of workers to total population, climbed to its highest level since August 2009.
- Some 7.4 million were working part time but would have preferred a full-time job, an increase of 225,000 from the prior month. A broader measure of unemployment that includes people working part time but who want a full-time job and others who are marginally attached to the workforce edged higher to 12.7% in March.
- Over the past year, average hourly earnings are up 2.1%, barely ahead of inflation. While Friday’s report showed that average earnings slipped by 1 cent to $24.30 an hour, the average workweek increased 0.2 hour to 34.5 hours. More hours mean more money in consumers’ pockets, spurring purchases of higher-priced goods that could propel broader hiring.
Last month’s numbers were particularly vivid. The economy added 28,500 temporary-help services jobs, representing 15% of all job gains in March. The number of temp jobs has risen almost 10% in the past year, the greatest increase of any of the 150 categories tracked by the Labor Department. (…)
All this comes as large corporations such as Wal-Mart Stores Inc. andAmazon.com Inc. have used temp hiring as a core part of their business structure, leading others to follow suit. More than 2.8 million workers were categorized as having temp jobs in March—about 2.5% of the workforce—up from 1.7 million in August 2009. (…)
The practice has moved deep into traditional manufacturing zones. Close to 40% of all temp jobs are now in manufacturing, a ratio that has risen steadily for several decades, said Susan Houseman, a labor economist at the W.E. Upjohn Institute for Employment Research in Michigan.
(…) “The employers see it as a quick way to easily be able to downsize without an impact on their core” workforce. (…)
But in an illustration of how short term these jobs can be, about 11 million people had a temp position at some point last year, compared with the 2.8 million people that currently have one, the American Staffing Association estimated.
(…) The average weekly pay of temp jobs, $554, is one-third less than the pay for all jobs, on average, according to the Bureau of Labor Statistics. And temp-job wages have risen more slowly than those for other jobs. (…)
“What’s driving this?” said Jim Link, chief human-resources officer at Randstad North America, a large employment company. “Lessons learned from a tough recession.”
When it comes to hiring, he said, employers are reluctant to invest “in the same way that they did before the recession.”
But there is a cyclicality in temp jobs as this BloombergBriefs chart shows. The problem is that it seems to always peak at the peak of the economic cycle…
The economy added a better-than-expected 42,900 jobs in March, after months of stagnant employment growth, as young people landed work and the public sector added to the head count.
The job gains, the largest in seven months, sent Canada’s jobless rate down one notch to 6.9 per cent. But smoothing out the monthly volatility, overall job growth in Canada has been “subdued” since August of last year, Statistics Canada said Friday. The six-month average for monthly job gains rose to a still-muted 10,000 from 3,000 in the prior month. (…)
Details of the jobs report were soft. Part-time positions rose by 30,100 in March while full-time jobs grew by 12,800. The country’s participation rate stayed at 66.2 per cent, its lowest level since 2001.
The public sector has seesawed in recent months, adding 39,300 positions in March after a slide of 50,700 jobs in February. The private sector added just 3,900 positions last month. In the past year, employment growth has come from the private sector while the public sector has been flat.
Manufacturing was another weak spot, shedding 9,200 jobs, while agriculture cut 12,400 positions.
Wage growth eased to 2.2 per cent from a year earlier, suggesting the one-month pickup in the labour market is not yet generating inflationary pressure. Wage increases are still below the 2.3-per-cent average gain over the past three years, though above the rate of inflation, noted Bank of Montreal chief economist Douglas Porter. “That’s enough of a real increase in wages to help provide some moderate support for consumer spending, but light years away from presenting a clear and present danger to higher inflation.” (…)
The estimate, first reported by Frankfurter Allgemeine Zeitung newspaper but confirmed by a person familiar with its contents, comes a day after the ECB gave its strongest hint yet that it is prepared to embrace bond-buying to prevent the eurozone from sliding into deflation, or even a long period of low inflation.
The estimate, which is based on just one of a number of options for QE that policy makers are considering, shows that €1tn of purchases of euro-denominated securities over the course of a year, or €80bn a month, could add between 0.2 and 0.8 percentage points to inflation in 2016.
The ECB is expecting a figure of 1.5 per cent in two years meaning QE could also potentially take inflation above the central bank’s target rate of just below 2 per cent. (…)
Q1 earnings season gets underway this week.
Expectations for the Q1 earnings season as whole remain low, with total earnings expected to be down -2.6% from the same period last year on +1.0% higher revenues and modestly lower margins. As has been the trend for more than a year now, estimates for Q1 came down sharply as the quarter unfolded. The current -2.6% decline in total earnings in Q1 is down from +2.1% growth expected at the start of the quarter in January.
Estimates for Q1 have fallen across the board, but the trend is particularly notable for the Retail, Basic Materials, Autos, Consumer Staples, and the Energy sectors, as the chart below shows.
19 companies have reported so far:
Total earnings for these 19 companies are up +0.5% from the same period last year, with 57.9% beating expectations. Total revenues for these companies are up +4.3%, with 47.4% beating revenue expectations. It’s premature to draw any conclusions from this small sample of results, but the growth rates and beat ratios for these 19 companies in Q1 are weaker than what we have seen from them in other recent quarters. It has overall been a fairly uninspiring start to the Q1 earnings season.
Consensus estimates for 2014 Q3 and Q4 have held up quite well, even as expectations for Q1 and Q2 came down over the last few months. Total earnings are expected to be up +8.3% in the second half of the year after the +1.4% growth pace in the first half of the year. We started last year with somewhat similar hopes, but had to sharply ‘revise’ those estimates as the year unfolded, with the starting point of the hope-for growth turnaround getting pushed to this year instead.
As of March 31, corporations had borrowed 38 so-called covenant-lite loans, according to data tracker Dealogic. That’s up from 35 at a similar point last year, and the highest first-quarter tally since 1995, as far back as the data goes. (…)
Dealogic noted the covenant-lite loan volume totaled $38.2 billion for the first quarter, the second-highest year-to-date total, behind the $41.1 billion borrowed in 2007.
Wall Street’s financial engineers are getting creative again.
Commercial real-estate investor H/2Capital Partners bundled a hodge podge of its holdings — from bonds tied to skyscrapers and malls to junk-rated bank loans — into about $400 million of securities. The deal, similar to the pre-crisis transactions known as collateralized debt obligations, included one portion that Moody’s Investors Service gave its highest rating of Aaa.
Sales of CDOs tied to commercial real estate are accelerating after the market lay dormant for five years. While anticipation started building three years ago that they would reemerge, the first post-crisis offering wasn’t completed until September 2012, Morgan Stanley data show.
About $3 billion of securities in 15 deals have been sold since, with six of the offerings brought to market in the second half of 2013, Hill said. He’s predicting that other investment firms will offer similar deals this year. (…)
And this (prescient) warning from Prince Street Capital Management (via John Mauldin):
Very strange month. First, the Fed reaction function is changing but the market don’t care – term risk premium barely moves, the 10y rallies a bit, and EM and high vol FX get stronger. Second, the most owned stocks in SPX, the ones that have been providing leadership to the market, sell-off, but this fails to trigger a sell-off in the broader market. Third, China has horrible economic data and the market rallies on the hopes of economic stimulus. Using different words to say the same thing: had you told me that Yellen was going to make the 6 month comment, that China growth was going to be close to 5% on a sequential basis, that Putin would invade Ukraine, and that biotech and the internet would have +10% sell-offs, I would have forecasted a very different set of prices for global markets than the one we got.
So to now make forecasts based on macro variables, would probably lead me to forecast equally wrong prices for the month ahead. Markets have increasingly become disassociated from macro; large macro variables were the primary drivers of markets since 2007, and so we are intuitively conditioned to the idea of markets responding to them. But in the mid to late stages of bull markets, macro is usually ignored; people are focused on whatever assets they own, and have a reluctance to believe that large macro variables will affect the value of the assets they hold. Correlations fall, hedge funds do well, and economists fret about their irrelevance.
A more technical take, is that market behavior in the past couple of weeks seems to be the result of everyone having the same trades and no one being there to take the other side: everyone was short the 10Y, short EM, short FX, long biotech and internet. This feels like a fragile equilibrium and one where people will want to de-risk their portfolios further. Whatever the framework that explains the market moves in the past month, it is not one that I feel confident about forecasting; the prudent thing to do in this environment is to de-risk the portfolio, and wait for more clarity to take aggressive bets. With the VIX at 14, I would also buy some puts.
This past week looked as if markets were going to make a decisive breakout to the upside. Alas, that was not to be the case as a brutal Friday sell-off took away all but a fraction of the week’s gains. In the end, the markets wound up where they began, stuck in their current trading range.
The much uglier story is the continued crushing of the previous “momentum” stocks. Many of the low share float, high momentum stocks (which are a favorite of high frequency trading programs) have been aggressively sold off in recent weeks. (Lance Roberts)
The breakdown in tech stocks, with the NASDAQ Comp. closing below its 100d avg for the 1st time since Dec’1212, says that equities are likely to suffer more in the week ahead. This threatens the developing Treasury bear trend, particularly after Friday’s Bullish Reversal Candles across much of the curve.
Historically, the 1st close below the 100d avg in 6 months or more has resulted in significant underperformance, with the avg 1wk, 2wk, and 1m returns all falling into negative territory. Beware, the 3968, Feb-05 low is vulnerable.