Jobs num­bers mov­ing in wrong di­rec­tion

The Washington Times Daily - - Business -

Istill have the con­cerns I voiced last week about ris­ing oil and gas prices and the ef­fect they have on dis­pos­able in­come and con­sumers cau­tious about spend­ing. Higher en­ergy prices, es­pe­cially at sus­tained lev­els, also are likely to pres­sure prof­its at com­pa­nies, force a reeval­u­a­tion of spend­ing and re­strain hir­ing, par­tic­u­larly if de­mand winds up be­ing less than ex­pected in the com­ing months. Ac­cord­ing to AAA’S Daily Fuel Gauge Re­port, gas at the pump con­tin­ued to creep higher in the past week and now stands at $3.76 per gal­lon, up al­most 30 cents in the past month.

The larger con­cern is that these higher fuel costs not only will drive up costs on food and other goods and ser­vices, but it will fur­ther crimp the do­mes­tic re­cov­ery. That’s right, I said “fur­ther crimp,” be­cause when we drill down on some of the more re­cent job cre­ation data we find it is vec­tor­ing in the wrong di­rec­tion.

Ear­lier this week, we re­ceived ADP’S take on pri­vate-sec­tor job cre­ation in Fe­bru­ary and the head­line showed a net in­crease in new jobs month over month. Some quick anal­y­sis of ADP’S find­ings, how­ever, re­veals the num­ber of jobs cre­ated in the first two months of 2012 fell com­pared to 2011. For the first two months of 2011, ADP showed 406,000 non­farm jobs were cre­ated com­pared to 389,000 for the first two months of this year — a con­trac­tion of more than 4 per­cent. Turn­ing to Fe­bru­ary’s Chal­lenger Job Cuts Re­port, we find the pace of planned lay­offs year to date is up 18 per­cent from last year, with 105,214 job cuts an­nounced through the first two months, com­pared to 89,221 dur­ing the same pe­riod in 2011.

Even econ­o­mists and pun­dits are ex­pect­ing Fri­day’s Fe­bru­ary Em­ploy­ment Re­port from the Bureau of La­bor Sta­tis­tics to show job growth slowed last month. The cur­rent con­sen­sus ac­cord­ing to Brief­ calls for the do­mes­tic econ­omy to have added 206,000 non­farm pay­roll jobs, com­pared to 243,000 in Jan­uary. Should that fore­cast prove ac­cu­rate, it’s an­other num­ber point­ing in the wrong di­rec­tion.

The un­em­ploy­ment rate has fallen from 9.0 per­cent in Septem­ber to 8.3 per­cent in Jan­uary, but that’s largely be­cause of peo­ple con­tin­u­ing to leave the work force. As a re­sult, I’ll be watch­ing Fe­bru­ary’s par­tic­i­pa­tion rate closely to see if that trend has con­tin­ued, slowed or reversed. Also too, fig­ures on av­er­age hourly earn­ings, the av­er­age work­week and over­time (es­pe­cially the lat­ter two) will bear watch­ing, as any move higher would sug­gest the need to hire. In the past five months, both the av­er­age work­week and over­time have re­main un­changed.

Next week, we’ll get an up­date on in­fla­tion ex­pec­ta­tions as the Bureau of La­bor Sta­tis­tics re­leases the Pro­ducer Price In­dex (PPI) and Con­sumer Price In­dex (CPI) data for Fe­bru­ary. Given the move de­scribed above in gas prices, one would ex­pect the CPI to heat up com­pared to Jan­uary. While I sus­pect we will see just that, the Fed­eral Re­serve tends to fo­cus on the core CPI as an in­fla­tion barom­e­ter, even though it ex­cludes food and en­ergy, which ac­count for more than 17 per­cent of a per­son’s av­er­age an­nual ex­pen­di­tures on a com­bined ba­sis, ac­cord­ing to U.S. Depart­ment of La­bor data.

The re­la­tion­ship be­tween the in­dexes in Fe­bru­ary also bears watch­ing to see whether man­u­fac­tur­ers and ser­vice providers are at­tempt­ing to pass ris­ing in­put costs on to con­sumers. If the CPI rises faster than PPI for the month, look for the warn­ing bells to ring on dis­pos­able in­come and dis­cre­tionary con­sumer spend­ing.

Tak­ing all of this leaves me less bullish than I was at the start of 2012. Proac­tive in­vestors can build that shop­ping list to take ad­van­tage of neart­erm volatil­ity to pick up qual­ity com­pa­nies at bet­ter share prices. I’ll con­tinue to look for com­pa­nies that are well-po­si­tioned to cap­i­tal­ize on near-term pain points, such as weak­en­ing con­sumer spend­ing, higher gas prices and more.

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