PowerTrend Brief: If the April Jobs Report Was So Good, Why Are Earnings and Spending Down?

I have to admit that after the last two weeks, I’m looking forward to a bit of a breather from the deluge of corporate earnings, not to mention last week’s shotgun spray of economic data. Even though the stock market delivered some good numbers last week — the S&P 500 was up 2% on its own — the information collected during the last few weeks points to a slower spring.

Key takeaways — falling hours worked means lower earnings. What are the key takeaways from those 10 trading days? FactSet found that 72% of companies have reported earnings above the mean estimate, but only 47% have reported revenues above the mean estimate. Second, when we aggregate the economic figures from last week — and there were more than a handful — it continues to look like the domestic economy is on track to grow 2%-2.5% this year, compared to the initial reading of 2.5% for the first quarter of 2013. The bright spots in that growth profile continue to be housing and automotive. But with consumer savings rates below 3% for several months and discretionary income figures barely moving up, consumer concern is set to return yet again.

We saw that consumer caution in spades through the April Employment Report and the Intuit Small Business Index for April, as both showed declines in average hours worked, average weekly earnings and overtime. Despite those declines, we had what I would call a relief rally on Friday, due to better-than-expected job creation figures, per the April Employment Report. But those figures shook off concerns of a bigger slowdown, based on the huge miss in the April Employment Report. If you didn’t see the stats, ADP reported the private sector added 119,000 jobs in April, well below the 155,000 that most economists expected.

Talking April Jobs with Andrea Tantaros. Just because we had a better-than-expected April jobs print on Friday, it is not a great number, nor does it signal that all is okay with the economy. I already pointed out that average hours worked fell, but there’s more — much more. That’s the point I drove home when I was on The Andrea Tantaros Show on Friday. You probably know Andrea from the Fox News program, “The Five,” which airs at 5 p.m. ET Monday through Friday. Not only is Andrea excellent on “The Five,” but she also has one of the fastest-growing talk radio programs in the country. Needless to say, it was great to be on the show, and here’s what we talked about…

While the headline figure for the April Jobs Report of 165,000 was stronger than expected, it was what I would call a low-quality jobs report. Most of the job growth was in lower-wage positions within the retail and leisure/travel industries. Moreover, there was a big jump in part-time jobs. Whether this increase was because employers cut hours back because of the weak environment or in preparation of higher costs, we have to remember that a part-time job is still a job in the eyes of the Labor Department. Those higher costs I’m talking about include taxes and regulations, and it’s not just small businesses that are facing them.

Recently, Regal Entertainment Group (RGC), which operates more than 500 theaters in 38 states, cut back shifts for non-salaried workers to 30 hours per week. Those reduced hours put the workers under the threshold at which employers are required to provide health insurance. When asked about this move, management responded the cut was a direct result of ObamaCare. Regal was one of the first companies to do this, but odds are it won’t be the last, and that means more people working fewer hours each week in the coming months.

Part-time work aside, the labor force participation rate, featuring the ratio between the labor force and the potential labor force, remained at 63.3% in April, the lowest participation rate since May 1979. Perhaps President Obama needs to spend a little more time figuring out how to put more Americans back to work than playing golf. According to a new report by the nonpartisan Government Accountability Institute (GAI), President Barack Obama has spent more than twice as many hours on vacation and golf (976 hours) than he has in economic meetings of any kind (474.4 hours).

The Cash Strapped Consumer is here to stay. Even after all of that, I would characterize the April Jobs Report as average at best. My reasoning is that the 165,000 jobs number is not far from the average number of jobs created during the last 12 months. If we were to continue to create jobs at that pace, and the labor force participation ratio remains near record levels, it would take more than 25 months to reach the 6.5% unemployment rate the Federal Reserve is targeting. Is it any wonder that Gallup’s latest findings show, more often than not, the economy is getting worse? Their response is to cut back on spending.

Putting on my investment hat, all of this information — modest economic growth, so-so job creation and weak if not declining real earnings — simply confirms that The Cash Strapped Consumer, a key part of my Living Longer Lives PowerTrend, will be with us for some time to come. That’s been fertile ground for subscribers to my investing newsletter PowerTrend Profits, and I’m working on the next several investment opportunities that we’ll use to put recent big profits back to work for us.

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