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Understanding the August Jobs Report

Weekly Update – September 5, 2011

The big news last week centered on the August jobs report, which was disappointing to say the least. Non-farm payrolls were unchanged in August but down 58,000 including revisions to June/July. The consensus expected a gain of 68,000. The unemployment rate remained unchanged at 9.1%.

U.S. stocks tumbled 2% on Friday in reaction to the news, as headlines showing zero jobs growth in August fueled investor concerns. And while the August numbers are certainly not attractive, there are a few underlying factors we would like to draw your attention to.

One of the reasons August’s numbers were so weak has to do with the Verizon strike, now over, that temporarily sidelined 46,000 workers. Were it not for that strike, private payrolls would have been up 62,000 including revisions. As it stands, workers on strike are counted as unemployed when they go on strike and are added as newly employed when they go back to work. Now that they have returned to work, a future employment report will show an increase of 46,000. It’s strange how the system works isn’t it?

There was also some positive news in Friday’s report. Civilian employment, an alternative measure of jobs that includes start ups, increased 331,000 in August, which is very encouraging. In general, when new businesses are starting up and hiring workers, it means the wheels of capitalism are turning in the right direction.

If you only look at the totals, it’s easy to say there was no employment growth in August, which is how most of the headlines read. But if you take time to look below the surface, a more balanced picture emerges. Much of August’s weakness can likely be attributed to financial turmoil in Europe, large swings in the stock market, and lawmaking that has brought much uncertainty to the hiring arena.

Although recession fears are still lingering, recent reports on auto sales, manufacturing and consumer spending suggest that the economy is still growing, albeit slowly. We believe future jobs reports will reflect that.

ECONOMIC CALENDAR:

Monday – U.S. Holiday: Labor Day

Tuesday – ISM Non-Mfg Index

Wednesday – Beige Book

Thursday – BOE Announcement, ECB Announcement, International Trade, Jobless Claims, EIA Petroleum Status Report

Data as of 09/02/2011

1-Week

YTD

1-Year

5-Year

10-Year

Standard & Poor’s 500

-0.24

-6.65

7.69

-2.09

0.36

Dow

-0.39

-2.91

8.92

-0.39

1.30

NASDAQ

0.02

-6.50

12.7

2.62

3.74

MSCI EAFE

0.08

-9.42

2.35

-2.58

2.14

10-year Treasury Note (Yield Only)

2.19

N/A

2.63

4.73

4.82

Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized.
Sources: Yahoo! Finance, MSCI Barra. Past performance is no guarantee of future results.
Indices are unmanaged and cannot be invested into directly. N/A means not available.