The First Bank of Snook, No Joke

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It's no joke, The First Bank of Snook really exists and really entered into agreement with the Federal Reserve today. However, we would be completely remiss NOT to make some kind of fun of this...

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Okay, so the big joke is clearly on humanity this year. It looks like God pulled the biggest April Fool's joke in history by moving April Fool's Day to May. The Federal Reserve executed an agreement with the First Bank of Snook!?! Come on, are you kidding me? And GDP grew?!? And the unemployment rate fell?!? That's enough big guy in the sky, you've taken this joke way too far.

The Employment Situation

The economy lost 20,000 jobs in April, far less than the 75,000 economists were looking for, according to Bloomberg's survey. CNBC's Leisman put the right label to the report, calling it the tale of two economies. Goods producing businesses, or the people who make things in construction and manufacturing continued to see drastic job loss, while the service sector continued adding to employment.

Construction lost 61K jobs, while manufacturing saw attrition of 46K, mostly in durable goods manufacturing. That's not a surprise for anyone following the auto industry, or even simply reading through General Motors' (NYSE: GM) quarterly report. Motor vehicles and parts lost 17K jobs during the month, and more are to be expected according to GM. A total of 326,000 jobs have been lost in manufacturing this year.

On the services side, professional and technical services employment increased by 27,000 jobs. I guess the practice of bankruptcy law is doing well these days. Health care added another 37K this past month. Well, besides the clear demographic driver, people experience a lot of stress when finances get tight and stress is a significant cause of illness. Okay, so we can't measure that directly, but we're just saying...

The only surprise we found in the report was the increase in food services, up 18K during the month. Retail trade lost 27,000, as we expected, but we're also looking for the saturated restaurant sector to lose some weight this year. Therefore, we view this number as an anomaly. Retail should also see some significant consolidation, and the early cuts have continued. This week, Home Depot (NYSE: HD) announced it would close some stores. You can expect a lot more of that this year in the retail industry, along with some bankruptcies. As a result, we were shocked to see Bob Dole recommend the purchase of The Gap (NYSE: GPS) yesterday on CNBC. Poor performers should be the first to go, and things are not looking so hot at GPS or Talbots (NYSE: TLB), despite the reported turnaround at The Gap.

The Under-Employed (God bless them)

The number of people working part-time for economic reasons, meaning they or their spouse probably lost their full-time job, increased by 306K in April. At 5.2 million part-timers, this level exceeds April 2007 by 849K. While considered employed by the government, these hard-working and striving people are still having a hard time making ends meet. This helps to mislead the economic read of the report, since if these people were a little lazy they would still be counted as unemployed. They're counted as employed, when in fact they are under-employed. They are not likely to consume as they would when fully employed, and this should stress overall GDP growth. The level of increase over last year is significant and should not be overlooked.

Another 1.4 million individuals who are not receiving unemployment checks anymore are considered "marginally attached to the workforce." Of this group, about 412K would probably like a job, but have not looked over the past month. The other million is not working due to school or family responsibilities. This number is not what matters, but the difference in this compared to the same level last year, and we do not see that information. Comment to the article if you have it please. Whatever it is, it does not look significant though.

Even so, the unemployment rate at 5.0%, compared to the 5.2% that was forecast by economists and the 5.1% recorded in March, is not necessarily good news to bank on. However, it's at least something to hold on to. With the tax rebate checks, along with tax refunds, going out now, the consumer might catch a breath here over the next month. Whether it will be enough air to last her until the economy finds longer-lasting fuel is yet to be seen. We have to give credit to the federal government though, because even while they were late in realizing the extent of housing troubles and the ability of the bubble burst to impact the broader market (which should have been plainly obvious), they have reacted in typically reactionary fashion aggressively. Now, many would argue that the Fed has gone too far, and we see the point in that as well. See our Steven Ferguson's article from this past week, Uncle Ben's Rice.

We hope our analysis has helped you avoid being snookered by the reported headlines. We have taken some harsh criticism lately for our turn to bullish for stocks. It seems some shorts have fallen in love with their books, and some herd types have gotten lost in the pack. We'll continue to be forward looking and to shed light on the market for you. Remember, the market is a leading indicator, and the federal government has taken aggressive action in this election year. So, no matter how bad things might have gotten otherwise, we cannot ignore the changes that have taken place in the dynamic marketplace. So, while we are looking for economic recession, we're not ignoring the market's already discounting of that, and it's attempt at pricing economic conditions that should exist six months from now.

God willing, we could be okay this year in the market. But, the pending conflict with Iran, the interests of China and Russia in the energy rich region, and the repercussions that might result from a likely well-schooled (from Iraq example) and well-prepared Iran could still shock our country this year into severe economic strife. If that happens though, you'll be concerned about more important things than this.

Please see our disclosure at Wall Street Greek. Article interests (AMEX: DIA, AMEX: SPY, Nasdaq: QQQQ, AMEX: QLD, AMEX: SDS, AMEX: DOG, NYSE: HD, NYSE: GM, NYSE: GPS, NYSE: TLB).

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