Where are the Jobs?

Today the Bureau of Labor Statistics (BLS) released total non-farm payroll growth for the month of September of +103,000 jobs. This was above the consensus estimate of about +60,000 jobs. July non-farm payrolls were revised upward by +42,000 to +127,000, and August was revised from 0 to +57,000. This makes August the fourth consecutive month with positive revisions. Private sector jobs continue to grow, while government jobs have been declining.

On Thursday it was announced that jobless claims fell by about 30,000, which was also a positive surprise.

Many people are concerned about the unemployment rate, which remained unchanged at 9.1%. In order to reduce unemployment, we will need to see sustained job gains of about 150,000-200,000 per month. Without job growth, there is concern that the economy could tip back into a recession.

We believe this is unlikely, as the economy is still growing, but slowly. In order to have a recession, we would need two consecutive quarters of negative growth. First quarter GDP was +0.7%, and second quarter GDP was recently revised from +1.0% to +1.3%. Current expectations for third and fourth quarter GDP growth are around 2%. Therefore, it appears that economic growth is positive and improving.

Unemployment is a lagging indicator, and is typically the last thing to improve coming out of a recession. By contrast, the stock market is forward looking. Our expectation is that the market will lead job growth, which will in turn push the unemployment rate lower. By the time the unemployment rate improves significantly, the market could be at much higher levels. We advise our clients not to get spooked by short-term focus on any particular weekly or monthly economic indicator, and to avoid dramatic changes to their portfolios based on the mood of the day. The jobs picture is not as grim as many headlines would have you believe.

Bill Hansen, CFA
October 7, 2011

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