Market Commentary

In my view the employment report for December was somewhat weaker
January 11, 2010

In my view the employment report for December was somewhat weaker than generally expected but not dramatically so.  Nonfarm payrolls unexpectedly fell by 85K versus the consensus view of no change and my view of a nominal increase; however November’s job loss was revised to a job gain.   Over the last three months, payroll losses have averaged about 69,000 with range between a 4,000 gain in November and 127K drop in October.

The unemployment rate held steady at 10.0% but October’s cycle high unemployment rate of 10.2% was revised lower to 10.1%.

Some of the shortfall in payrolls was due to a 21K decline in government jobs.  Within the private sector construction and leisure/hospitality were disappointing however factory jobs posted their smallest loss in two years.  Temporary hiring however remained strong for the fifth consecutive month rising by 47K, the longest streak since 2005.

I think it is noteworthy immediately following the 2005 stretch of gains in temporary employment, nonfarm payrolls rose by an average of 239,000 per month during the next 12 months versus 116,000 the previous twelve months. 

If history is to repeat itself and given that a record 7.4 million jobs have been lost during the past two years with vast majority—5.3 million from October 2008-July 2009 when companies panicked and fired a gazillion workers to ensure survivability—job gains could potentially be amplified.

I also ask rhetorically is hiring being held back because the outcome in Washington is yet quantifiable?  In my opinion policy and politics is exerting the greatest influence upon the economy and the markets in over 25 years.

And then there is the weather?  How much did the severe winter weather affect hiring?  As all know weather is a convenient excuse for almost any shortfall.

Because of this backdrop and strong propensity of positive revisions, I think job growth will likely be positive in the first quarter.

Friday there was little market reaction to the data as most indices posted small changes.

This week earnings season commences with the release of Alcoa’s fourth quarter results.  Will earnings again exceed expectations?   As per Bloomberg earnings are expected to increase from the year earlier period for the first time since the second quarter of 2007 ending a record nine straight periods of decline.

Comparisons should be relatively easy given last year’s events as consensus is expecting an overall 60% increase in fourth quarter results.

Other notable upcoming weekly events includes the release of The Fed Beige Book—a statistical survey of economic activity released several days before a FOMC meeting, Trade Deficit, Import Prices, Retail Sales, Business Inventories, Empire Manufacturing, Capacity Utilization/Industrial Production and the University of Michigan Confidence Survey.

Last night the foreign markets were up.  London was up 0.50%, Paris up 0.66% and Frankfurt up 0.65%.  Japan was up 1.09% and Hang Sang up 0.51%.

The Dow should open moderately higher as China’s trade figures added evidence that a global economic recovery is gathering pace. The 10-year is up 4/32 to yield 3.81%.