Friday, July 6, 2012

June '12 Employment Report Disappoints

BLS' June employment report NFP change print was a mere 80K, slightly above our 74K estimate, but far below the Street's 100K.  We note that after the higher than expected ADP report yesterday morning, many (including Goldman Sachs) adjusted their projections higher, resulting in the consensus moving up to 100K from 95K.  We must say that we stuck with our 74K estimate even after that great ADP report.  Also, if anyone pays attention to the unemployment rate anymore, it remained at 8.2%.

The S&P futures are down 10 as a response to this disappointing report.  We'll likely see the negative turn slightly into positive as many analysts will start making the QE3 pitch.  Watch gold; if it starts paring losses (gold futures are down around $18.30 at this time), it means it is expecting at least some pro-QE3 headlines.  Technically, although the 10-day EMA went above the 50-day, with both trending up, S&P 500 has not yet crossed that linear regression channel which indicates more of a long-term trend.  Critical level today is probably at 1355.  If it closes below that, a head & shoulder (H&S) pattern could be in the making.  Next week's release of the last FOMC meeting's minutes will be considered very important as the market hopes it provides more color regarding chances of a QE3.

Regarding the employment report, as mentioned earlier, NFP came in at 80K.  We must note that April NFP was revised down by 9K while the May figure was revised up by 8K; net downward revision of 1K over those two months.  Most of the industries added workers and/or stayed unchanged in June.  However, growth has slowed.  The leading 'go-getter' was the professional & business services industry which added 47K, of which more than half were temporary hires (25.2K versus 18.6K in May).  We have consistently talked about why an uptick in temporary hires during what is supposedly a growing economy is not a very good sign.  Government NFP declined by 4K, making the private non-farm payoll count for the month 84K.

The labor force increased by 156K in June, which with an increase of 34K people dropping out of the labor force, resulted in a net increase of 122K of the labor force.  This long explanation was necessary to explain why unemployment rate remained at 8.2%.  The actual number of unemployed went up by 29K, which the optimists can say was at least less than the 220K we saw in May.

Here is another data point supporting our view on the temporary hires:  top reason for unemployment was "job losers and persons who completed temporary jobs".  Also, the number of part-time workers for economic reasons went up 112K, while for non-economic reasons dipped 564K.

Some bright spots in the report included an increase in average workweek to 34.5 hours from 34.4, and a 0.3% increase in hourly wages from the prior month.  Wage growth was higher than expected.

Again, let's see if Bernanke, along with the pro-market headlines he creates, can bring down this anxiety which has been brought on by a disappointing employment report.

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