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Commentary on Friday’s Jobs Report

02/06/2011

HEADLINE POINTS

  • The unemployment rate (Fig 1.1) declined to 9% from 9.4%, a significant surprise versus consensus estimate for a rise to 9.5%
  •  As I mentioned in a previous blog post, weather did impact the report - 886,000 workers missed work during the employment survey week<?LI>
  • A weather impacted headline number disappointed at +36,000 versus +103,000 for the prior month
  • Private sector jobs gained +50,000 versus +113,000 for the prior month

LET'S CONSIDER

  • The 0.8 % two month drop in the unemployment rate - November 2010 @ 9.8% to January 2011 @ 9.0% - was the largest two month decline since 1958. The rate is now the lowest since April 2009.
  • The final 2010 statistic for labor reports only 909,000 jobs were added in the U.S. - QE2 is justified.
  • Average hourly earnings rose 0.4% $22.86 from $22.78, the highest since the fall of 2008.
  • The average work week fell to 34.2 hours from 34.3 hours.
  • Analysts expected weather to remove 300,000 workers from the count, well below the actual 886,000. To place this in better context, over the past few Januarys, the range has been between 250,000 and 275,000.
  • The underemployment rate fell to 16.1% from 16.7%.

COMMENTARY

Post January FOMC I suggested that "No News is Good News."  Digging into this month's jobs report, it is very difficult to draw a significant bullish or bearish conclusion. The absence of any unified conclusion (No News) supports my Good News effect on the capital markets.  

Within the capital markets, the re-allocation trade from safe haven assets continued. Treasuries climbed once again to levels not traded since the beginning of last year's "Baseball Season of Frustration." I view the current rise in yields much differently than last spring's. The current rise in yields is further confirmation the economic recovery is gaining momentum.

One of the best indicators for the economic outlook and confidence within the capital markets is the continued decline in the VIX (S&P Volatility Index).  That index is beginning to follow the 2005 template (Fig 1.2), slowly declining as confidence continues to gain momentum.

Potentially boring, but certainly favorable for risk assets.

Figure 1.1 Unemployment Rate January 2008 to January 2011

Source: Bloomberg

Figure 1.2 VIX Index 2005

Source: Bloomberg

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