Weekly Update – July 9, 2012
The major indices closed mixed last Friday as a week of slow trading was capped by
a market-wide selloff on Friday. The retreat was driven by a mediocre June jobs report and fears about a jobless recovery. The S&P closed down only 0.55%, the Dow gained 1.35%, and the Nasdaq rose 0.08%.[i]
The U.S. suffered its third month of sub-100,000 jobs growth in June, adding just
80,000 new jobs. The economy needs an average growth of at least 125,000 new jobs per month in order to be considered healthy.[ii] However, let’s take a moment to dig a little deeper and consider what lies
behind the jobs numbers each month. One of the complications of calculating jobs growth is seasonality, which economists have to estimate based on their knowledge of annual trends. Currently, we’re in one of the slow periods of the year, when factories slow production and retailers see fewer sales. Economists
only expected to see 90,000 new jobs; although we missed that number, the situation is not as grim as it appears.
A more positive indicator that we saw in the jobs report is that the number of temporary workers grew by 25,000, accounting for nearly one-third of the new jobs last month. [iii] This is good news because the hiring of temporary workers historically presages that of permanent employees. Hiring full-time employees is a significant investment that businesses may be reluctant to take on in a shaky economy. Temporary employees can fill the gap without a significant investment. As employers become more confident of their own needs and the economy, they often convert temporary employees into permanent staff.[iv]
Two more positive indicators could mean that the jobs market is emerging from a
spring slump. The number of Americans applying for jobless benefits fell to a three-month low in June, and the number of layoffs announced in June fell to a 13-month low – about 40% less than May’s number of layoffs. Both of these reports indicate that employers are becoming motivated to keep existing
employees and reduce layoffs. That plus the increase in temp worker hiring could mean there’s hope for a rosier employment picture later this year.[v]
While the job market and economy are far from healthy and we are unlikely to see the
robust employment numbers of earlier this year, we can hope to see moderate employment growth ahead. Falling gasoline prices may increase consumer spending and businesses will see their prospects improve, improving the overall employment outlook. Keep in mind while reading the media’s spin on economic reports that they often tell a small part of the picture. Headlines tend to focus on the worst-case scenario without taking the time to explain the data that can be understood by digging deeper.