Job Market Gains Look Tired

With almost any topic, one can take a positive view or negative, and that slant could be affected by the general opinion of the reviewer about that topic. Thursday’s Jobless Claims data, like most economic data, offers that same potential. The rate of jobless claims is still not optimal, but on a relative basis, it is certainly better than the last few years’ results. However, the pessimist, or maybe the realist who sees what’s developing in the global economy today, might say the latest lull in this data point, with claims stuck around the same rate, could indicate the latest improvement trend seen in the labor market is stalling. If that is the case, with the economy potentially stalling or recessing this year on various important factors, then we may have found another inflection point for labor, with a deterioration trend to follow.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

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Tiring Job Market

Weekly Initial Jobless Claims were reported at 351K in the week ending February 25, down only 2,000 from the prior week. Indeed, the four-week moving average reflects the stall in labor market gains, as it settled in close to the weekly count, at 354K. Several consecutive weeks of claims running at about this rate have had that effect, and the moving average improved 5,500 in the latest period. But is the latest activity indicative of a still improving labor market, or rather reflective of a stall in the rate of improvement? In the event of the latter, perhaps the claims data is telling us something about the economy, which seems to me likely to stall as well this year.

First of all, much of the gains in labor are suspect to begin with. In the past, we talked about the seasonal benefits. We have also discussed in detail the anomaly caused by the drop-off of the long-term unemployed who likely fall off the radar when their extended benefits expire. With the long-term unemployed representing a high percentage of total unemployment, this is likely playing an important role in the latest improvement trend in the unemployment rate, which was last measured at 8.3%. The number of Americans claiming benefits of some sort, including unemployment benefit extension payments, numbered approximately 7.5 million on February 11.

Still, the weekly initial jobless claims data do not include such noise. The data therefore offer an important and clear insight into today’s layoff activity, and some insight into the state of labor. With regard to this data point in particular, it’s clear now that there’s been some improvement in layoff activity. But, we cannot be so sure this is reflective of improved hiring patterns.

The Monster Employment Index (MEI) measures online job demand, and therefore offers some insight into hiring. The latest report covering January was partly tainted by a seasonal lull, but it offers useful insight anyway. While the MEI dropped to 133 in January, down from 140 in December and 147 in November, it was still 9% higher than last January’s 122 mark. Within the data, Monster Worldwide (NYSE: MWW) showed that the public sector continued to shed jobs, but it was the only area that showed contraction in January. Monster commented that transportation and warehousing, retail and wholesale have maintained strong growth trends. That said, the rate of improvement of job demand within manufacturing slowed, falling into the single digits for the first time since February 2011. One might argue that this could be on seasonal issues, as manufacturers shut down plants for maintenance at certain times during the year. But today’s ISM Manufacturing Index decline, and this week’s Durable Goods Orders drop-off seem to concur with what I interpreted from the Chicago Fed’s National Activity Index, which I believe foreshadows economic sluggishness if not recession. Finally, unless it’s a Renter Nation you’re interested in, then housing is not faring well either, despite the gains that I see shaky in homebuilders’ shares.

While relative employment stocks celebrated Thursday, the shares of employment services firms seem to confirm my view of the labor situation generally. The stocks are mostly higher since early October, but indicate a loss of confidence over recent weeks. For instance, looking at the charts of Robert Half International (NYSE: RHI), Korn Ferry (NYSE: KFY) and Kelly Services (Nasdaq: KELYA, Nasdaq: KELYB), we see that trend clearly. Kelly Services (Nasdaq: KELYA) is up 42% since October 3, 2011, but down roughly 14% from an intraday high of $18.05 in early February. Robert Half is also up about 42% since early October but down slightly from a recent high. Monster Worldwide (NYSE: MWW) breaks the industry trend (with a negative slant), but its shares seem to have diverted from the industry on alpha, or company specific driver.

A critical eye will be required as we receive the monthly labor reports next week. I would advise those inspecting the data to remember that labor is a lagging indicator. The latest developments in Europe, plus costly gasoline prices here at home due to an Iran issue that will not go away soon, weigh heavily on our vulnerable economy this year. As economic growth slows, so should labor activity, despite what the data may tell the optimist today.

Article should interest investors in Paychex (Nasdaq: PAYX), Manpower (NYSE: MAN), Robert Half International (NYSE: RHI), 51Job Inc. (Nasdaq: JOBS), Monster World Wide (NYSE: MWW), Korn/Ferry International (NYSE: KFY), Administaff (NYSE: ASF), Kforce (Nasdaq: KFRC), TrueBlue (NYSE: TBI), Dice Holdings (NYSE: DHX), Kelly Services (Nasdaq: KELYA), CDI Corp. (NYSE: CDI), Cross Country Healthcare (Nasdaq: CCRN), On Assignment (Nasdaq: ASGN), AMN Healthcare Services (NYSE: AHS), Barrett Business Services (Nasdaq: BBSI), Hudson Highland Group (Nasdaq: HHGP), StarTek (NYSE: SRT), RCM Technologies (Nasdaq: RCMT), VirtualScopics (Nasdaq: VSCP), American Surgical (OTC: ASRG.OB), Medical Connections (OTC: MCTH.OB), iGen Networks (OTC: IGEN.OB), St. Joseph (OTC: STJO.OB), General Employment Enterprises (NYSE: JOB), Total Neutraceutical (OTC: TNUS.OB), TeamStaff (Nasdaq: TSTF), Stratum (OTC: STTH.PK), Purespectrum (OTC: PSRU.OB), Corporate Resource Services (OTC: CRRS.OB).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

An Awkward Pause Before Further Labor

Last week, many rejoiced about the dip in Weekly Jobless Claims, which fell to 351K (revised from 348K), a level not reached in almost four years. The latest data, reported Thursday, showed the weekly count of unemployment benefit filers stuck at that same relatively low mark. Something is certainly afoot, given that the four-week moving average dropped as well, and for the sixth straight week. When the moving average coincides with the weekly data, we can no longer attribute the decline to passing factors like the Super Bowl skew or President’s Day. That said, I suggest the latest decline in jobless claims is a passing fad, an awkward pause, until renewed economic softness impedes what might have been real traction in our economy.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Just an Awkward Pause

Jobless claims were unchanged in the period ending February 18, and the four-week moving average dropped by 7,000, to 359,000. The advanced seasonally adjusted insured unemployment rate was unchanged at 2.7% in the period ending February 11, after declining a tenth of a percentage point the week before. Finally, the total number of people claiming benefits in all programs, including the benefits extension program, fell by 178,619 in the period ending February 4, to 7.5 million. That might be wonderful news, except for the fact that many of our long-term unemployed are simply running out of benefits rather than finding new work.

Still, labor numbers have been improving across metrics, and some of those gains must be real. Unemployment was most recently reported improved for the month of January, falling to 8.3%. Indeed, even despite all the usual suspects that make the employment report suspect, some improvement is undeniable.

However, let us not forget that employment is usually a lagging indicator of economic conditions. My concern now is that the economy is turning for the worse, while employment is still gaining from previous economic strides and off extreme unemployment levels.

What we have to look forward to now is recession developing or already occurring in Europe, where 20% of American exports are sold. Meanwhile, even the Chinese economy looks to be softening, as its most important buyers are suffering. Some would say Europe is already affecting the American economy. Yet, even in Europe, it seems investors have not adequately discounted the scenario, with the iShares S&P Europe 350 Index (NYSE: IEV) up 15.7% since a December 19 trough. So why would we expect U.S. investors to give credence to our call? Well, because we see a few moves ahead, and because we’re patient. The SPDR Dow Jones Industrial Average (NYSE: DIA) is up 6.4% on the year through February 22, 2012.

American economic data has already begun to show signs of softening, with a wide variety of reports revealing the ugly economic truth. Housing data has missed expectations of late, leaving high flying housing stocks without support. Though even after dipping the last few days, the SPDR Series Trust Homebuilders (NYSE: XHB) is up 56% since its October 3, 2011 trough, after adjustment for dividends and splits.

Gasoline prices are on the rise due to escalating tensions with Iran, where war seems more likely to bust out than not today. Consumer spending must come under pressure as a result of this critical consumption factor’s drive higher. Yet the SPDR Select Sector Fund – Consumer Discretionary (NYSE: XLY) is 27% inflated since October 3, 2011. The retailers are noting mixed results, but in aggregate, they are disappointing forecasters. Followers of mine have been shorting them on the whole along with the homebuilders, and I expect will be rewarded for their early anticipation of the move. The SPDR S&P Retail ETF (NYSE: XRT) is 31% inflated since October 3, 2011.

Individual corporations are reporting mixed results, but disappointments at important economic drivers including Wal-Mart (NYSE: WMT), Ford (NYSE: F), Kohl’s (NYSE: KSS), Dell (Nasdaq: DELL), Amazon.com (Nasdaq: AMZN) and Sears (Nasdaq: SHLD) are notable. In such circumstances, as our vulnerable economy faces new and serious headwinds, it seems clear to me that wisdom favors an inevitable new stumble for the economy, followed by the lagging labor market.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.