The Economy and Markets:

The good and the not as good

What would you like to hear first – the good news or the bad news?

 Let’s start with the ‘not quite so good news’ story so we may end on a positive note.

Investors, bondholders, the Federal Reserve, economists, politicians and job seekers are always keeping tabs on the labor market. Without digging too deep into the details, Fed policy is heavily influenced by the strength, or lack thereof, in job growth, and that has a direct impact on interest rates and income derived from portfolios.

On Friday, the Bureau of Labor Statistics reported a 169,000 increase in nonfarm payrolls in August, slightly below the consensus forecast of 175,000 (Bloomberg). More disappointing, July was revised downward to 104,000 from 162,000. Still, the economy continues to gradually create new jobs.  The unemployment rate slipped from 7.4% to 7.3%, the lowest since December 2008 (BLS). On the surface that looks good, but the headline doesn’t tell the whole story. Case in point, a 312,000 decline in the labor force was responsible for the drop in the unemployment rate.  This gave credence to the possibility that the Federal Reserve may continue a bit longer with its bond buying program or at least the majority of the present amount if any change is made.  Prices for gold, silver, and bonds rose while stock indices were fairly flat across the board.

Nonfarm payrolls and the unemployment rate are derived from completely separate surveys, offering differing views on employment that don’t always line up. Nonfarm payrolls are derived from a separate survey of businesses that do not impact the jobless rate, which is taken from a different survey of households.  This leads us to what economists call the labor force participation rate. For some this may get a bit confusing, but it helps paint a good visual as to why the unemployment rate isn’t fully capturing what’s going on in the labor market right now.

The labor force participation rate is really pretty simple: it is the labor force (1-those working + 2-those unemployed AND actively seeking work) divided by the civilian non-institutional population (BLS).

Another totally separate independent employment survey is done on a daily basis by the Gallup organization.  Based on their most recent survey on September 7, 2013, the unemployment rate was 8.4%, and the “underemployed” rate was 17.2%.  These come in quite differently than that published by the Labor Department.  (Source: Gallup Daily: U.S. Employment)

Now let’s turn to the good economic news:

1-      Weekly initial jobless claims (those seeking unemployment compensation following a layoff) are very near late 2007 levels (Dept. of Labor).

2-      While consumers are holding back on some purchases, auto sales have been very strong. Last week, the automakers reported annualized sales of 16.1 million units, the best reading since November 2007, one month before the recession began (Bloomberg).

3-      Two key measures of economic activity – one for manufacturing and one for the service sector – exceeded expectations (Bloomberg). In fact, the survey of the broad-based service sector hit an eight-year high (ISM/Reuters).

The apparent acceleration in the economy isn’t yet creating a significant number of new jobs.

Where We Spend Our Time:

It doesn’t appear Americans are working as much as they used to?  The following is a breakdown of how the average American spends their day based on the most recent survey:

We hope you all have a great week ahead and appreciate the opportunity to be of service.  Please call if you have any questions, or if we can be of further service in any way.

God Bless,

Your TEAM at F.I.G. Financial Advisory Services, Inc.

 

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