Initial jobless claims ticked higher to 445,000 from a prior revised 410,000 and a street consensus of 410,000. Continuing claims fell to 3,879,000 from a prior revised 4,127,000. The street was looking for 4,088,000. Why the conflicting numbers? The numbers are not that conflicting when one considers that the initial claims data are from the week ending January 8th and the continuing claims data are from the week ending January 1st. Remember that last week’s initial claims also surprised to the low side. What may have caused the low reads for the week ending January 1st (the last week of December 2010) are seasonal adjustments and the blizzard and other inclement weather which impacted the eastern half of the Country. When people are snowed in they don’t go out to file unemployment claims. The higher-than-expected initial claims data for the week ending January 8th may have some “catch-up” within them. However, the four week average of initial claims has increased to 416,000. The four week average is considered to be a better indicator of initial claims as it includes revisions and smoothes the data which can include spikes and troughs.
The bottom line, folks are that the jobs market is improving modestly, much in the same way that the economy is recovering. The question remains: From where are jobs going to come? No one has the answer. All I hear from optimists is: job growth always follows. Have they stopped and considered that this is the job growth they have been waiting for?
An increase in temporary employment has long been considered a bellwether, portending permanent job growth, but the data does not support this phenomenon this time around. The number of temporary workers continues to grow, but has not translated into permanent employment, thus far. Also, workers who are finding jobs are often forced to accept lower compensation levels from what they were making prior to the “Great Recession.” Many investors and market participants believe that a return to “normal” is just around the corner. They are correct in that belief. Where they are wrong is their interpretation of normal. The tech and the housing bubbles wee not normal. In the coming years, average growth of 3.00% - 3.50% will probably be normal. Unemployment slowly dropping to around 7.00% will probably be normal. Technology, globalization and temporary jobs becoming a long-term fixture in the economy are structural changes to employment in the U.s. Home prices declining further before slowly rising is probably normal. Get used to it.
Former Delaware Senator Ted Kaufman was a guest this morning on CNBC’s Squawk Box show. He discussed auto bailouts and recovery with host Joe Kernan. Most of the conversation was just a rehashing of the auto bailouts and bankruptcies. However, the talk turned to moral hazards, specifically banks and sovereign nations. Mr. Kernan and Mr. Kaufman agreed that every company or government can or should always be bailed out. Where are the incentives for business executives or elected officials to act responsibly? Why should investors care about the credit quality and financial conditions of various entities? Bailouts have to be paid for. They are being paid for by taxpayers and consumers. Sometime in the future (possibly near future) investors are going to be whipsawed when a “too big to fail entity” fails or restructures debts.
PPI rose, mostly due to higher food and energy prices. Once again the question is: Can or will businesses pass cost increased onto consumers. At this point the answer is no (at least not fully). Many (if not most) businesses would rather erode profit margin or cut costs elsewhere (labor, energy use, etc.) than rises prices while the consumer is impaired and competitors are hungry for whatever business they can get,. CPI probably will not correlate with PPI. If it does, consumer spending could be hampered. Remembers, consumers are feeling the food and energy pain directly at the pump and at the grocery store. Higher food and energy prices tend to act as a regressive tax on consumption (regressive in that it affects lower-income consumers the most). Higher food and energy prices can be significant headwinds to growth if real consumer income does not rise in kind. There are very few signs of that happening now or in the near future.
The U.S trade balance narrowed thanks mainly to the weaker U.S. dollar fueling exports. However, the U.S. trade deficit with China widened. Please tell me again why China wants to strengthen the renminbi versus the dollar?
I have been home battling multiple ailments, but have been coming along. Who knows, maybe I will have to create a for-profit newsletter. Necessity is the mother of invention ~ Plato.
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