PowerTrend Brief: The Real Deal on the July Employment Report

Chris Versace

Chris Versace is a financial columnist and equity analyst with more than 20 years of experience in the investment industry.

On its face, last Friday’s better-than-expected July Employment Report issued by the Bureau of Labor Statistics (BLS) catapulted the market higher, wiping out losses earlier in the week. The S&P 500 rose 1.9% alone on Friday, far more than the 1.5% fall it experienced following the lack of new news midweek from the Federal Reserve and European Central Bank. By comparison, the Dow Jones Industrial Average climbed 217 points, or 1.69%, on Friday.

The BLS’ employment report indicated 163,000 new jobs were added during July to mark a meaningful jump from 64,000 in June, not to mention the 2Q 2012 average of 73,000 new jobs per month. What many observers have overlooked, however, is that even the July level of job creation was still slower than levels reported during 1Q 2012, which averaged 225,000 per month.

Worse yet, despite greater job creation, the unemployment rate climbed to 8.3% from 8.2% in July, even though the labor force participation rate fell month over month as another 348,000 Americans left the labor force. In other words, more people left the workforce than found jobs in July.

The reality is that even though the July employment report was better than those from the last few months, it has not moved the total jobs created needle in 2012. Year to date, employment growth has averaged 151,000 jobs per month, about the same as the average monthly gain of 153,000 jobs in 2011. There has been little overtime and wages are essentially stagnant, which helps explain the recent dynamic in Personal Income and Spending that has consumers spending less and saving more.

Perhaps one of the funniest things to come out on Friday was how Alan Krueger, chairman of the Council of Economic Advisors, felt the need to increase the number of digits on the right side of the decimal point to report the unemployment rate rather than stick with the convention of using just one digit on the right side of the decimal point. On the White House website, Krueger mentioned the “real jobless rate” was 8.254%, not 8.3%. While trying to paint a better picture on the rise in the employment rate, Krueger missed the larger issue — that the unemployment rate has been stuck above 8% for more than three years and that the larger measure of unemployment, referred to U6, rose to 15%, up from 14.9% in June. As background, the U6 unemployment rate counts not only people who are out work and seeking full-time employment, but also includes “marginally attached workers and those working part-time for economic reasons.” “Marginally attached workers” include those who have gotten discouraged and stopped looking, but still want to work.

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In many ways, Krueger’s attempt to “explain” shows just how important the subjects of job creation and the unemployment rate are in this campaign season. It also shows how desperate the current White House is to make a bad situation appear better than it really is.

In short, while better than expected, the July employment report changes little to the overall economic landscape that paints a picture of a slowing economy with rising uncertainty.

As tends to be the case, August will be a relatively quiet month, particularly the second half. But I’ll be using the time to revisit, as well as uncover, new opportunities for PowerTrend investors. Consider joining us by subscribing to my monthlyPowerTrend Profits investment newsletter.

Sincerely,

Chris Versace
Editor, PowerTrend Brief

P.S. Today’s challenging market conditions require even more knowledge than ever for investors and traders like you to keep pace with the latest market intelligence to safeguard your portfolio and to profit from opportunities that only may be available for short periods of time. Join me at this year’s MoneyShow San Francisco, August 24-26, at the San Francisco Marriott Marquis to hear recommendations and advice about how best to profit in 2012 and beyond! Register FREE today by clicking here, by going to ChrisVersace.sanfranciscomoneyshow.com or by calling 1-800/970-4355 and mentioning priority code 027877.

This Week Ahead

With the July Employment Report behind us, and as we move into the second week of the 2012 Summer Olympics, the stream of economic data this week will be more like a trickle. This situation will allow investors and traders once again to focus on corporate earnings, which enter the second round as retailers such as Ralph Lauren (RL), JC Penney (JCP), Nordstrom (JWN), Kohl’s (KSS) and others start to report their quarterly results. Those results should offer some insight into the state of the consumer, not to mention provide an update as to how JC Penney’s turnaround is progressing. With the Midwest drought and subsequent rise in corn and soybeans, commentary and forecasts from the likes of Red Robin Gourmet Burgers (RRGB), Dean Foods (DF), Ralcorp (RAH) and Tyson Foods (TSN) should help clue us in to the potential damage that rising input costs pose during the second half of 2012 and into 2013.

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Fasten your seat belts, as last week’s bumpy ride is poised to continue this week.

Monday, Aug. 6
American States Water (AWR)
Argo Group International (AGII)
Bristow Group (BRS)
Cinemark Holdings (CNK)
Dillard’s Inc. (DDS)
Manitowoc Co. Inc. (MTW)
Sohu.com (SOHU)
STAG Industrial (STAG)
Standard Motor Products (SMP)
Tyson Foods (TSN)
Warnaco Group (WRC)

Tuesday, Aug. 7
Consumer Credit (June)
International Council of Shopping Centers-Goldman Store Sales (Weekly)
Amedisys Inc. (AMED)
Artesian Resources (ARTNA)
Blount International (BLT)
Bridgepoint Education (BPI)
Buckeye Technologies (BKI)
Church & Dwight Co. (CHD)
Cree Inc. (CREE)
Express Scripts Holding (ESRX)
Fossil Inc. (FOSL)
Molson Coors Brewing (TAP)
NII Holdings (NIHD)
Powell Industries (POWL)
Sotheby’s (BID)
Spectrum Brand Holdings (SPB)
Starwood Property Trust (STWD)
The Pantry (PTRY)

Wednesday, Aug. 8
MBA Mortgage Index (Weekly)
Unit Labor Costs (2Q 2012)
Calgon Carbon Corp. (CCC)
Core-Mark Holding Company (CORE)
Darling International (DAR)
Dean Foods (DF)
DISH Network (DISH)
Inter Parfums Inc (IPAR)
International Flavors & Fragrances (IFF)
Jack In The Box (JACK)
Macy’s Inc. (M)
Maidenform Brands (MFB)
Ralcorp Holdings (RAH)
Ralph Lauren Corp. (RL)
Symmerticom Inc. (SYMM)
TreeHouse Foods (THS)

Thursday, Aug. 9
Weekly Initial & Continuing Jobless Claims (Weekly)
Advance Auto Parts (AAP)
AMC Networks (AMCX)
Applied Industrial Technologies (AIT)
Bally Technologies (BYI)
Bottomline Technologies (EPAY)
Cedar Fair LP (FUN)
DeVry Inc. (DV)
Elizabeth Arden Inc. (RDEN)
Esco Technologies (ESE)
Hillshire Brands (HSH)
Imperial Holdings (IFT)
Kohl’s Corp. (KSS)
Nordstrom Inc. (JWN)
Red Robin Gourmet Burgers (RRGB)
The Wendy’s Co. (WEN)
WageWorks, Inc. (WAGE)

Friday, Aug. 10
Harman International Industries (HAR)
JC Penney Company (JCP)
Rentech Nitrogen Partners, LP (RNF)

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Markets spent the better part of the week drifting lower in anticipation of the Federal Open Market Committee (FOMC) meeting results. However, all the major indexes “made up for lost time” on Friday to close the week on a winning note. The Dow Jones Industrial Average gained just 0.16%, while the NASDAQ Composite and S&P 500 Index rose 0.33% and 0.36%, respectively. Emerging markets fared better as the MSCI Emerging Markets Index (EEM) added 1.01%.
 

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