Today’s jobs news was anticlimactic or excusable apparently, since stock prices extended their winning streak despite this morning’s disappointment on the jobs front. Where some forecasters expected that upwards of 200,000 new jobs would turn up in today’s report on employment conditions in January, in fact only 36,000 jobs were added last month (half as many as applied to work at Google last week) and strangely none outside of manufacturing. These totals fly in the face of the stronger ISM and ADP surveys; don’t square with the falling weekly jobless claims either; and run counter to the household survey’s finding that the nation’s unemployment rate fell to 9.0% last month from 9.4% in December, the second straight monthly decline of that magnitude.
Employment in temporary help services declined 11,000 for the month, the worst result since the recession ended in June 2009. This might be a bad portent for 2011 since temporary help services are thought to be a leading indicator for trends in permanent employment. On the other hand, temporary jobs might just be the first ones to be abandoned due to bad weather. Likewise, the 32,000 jobs lost in construction in January, the biggest losses since last May, has the feel of being weather-induced or a case of bad seasonal adjustments.
One perplexing aspect of the weak jobs report for January is that while the weather may have kept people from working or looking for working, it apparently didn’t keep them from buying things. Retailers reported that same store sales jumped 4.8% last month, according to the International Council of Shopping Centers. That may signal that consumer confidence is on the rebound. Or maybe all of January’s economic statistics need to be looked at with a gimlet eye; in the end, the month may have to be chalked up to bad weather and its effects on various seasonally adjusted data. That said, it seems to us that the ISM purchasing manager surveys ought not be terribly influenced by the weather, which is a good thing for the economy and stock market since the upturns in the two ISM indexes (for manufacturing and service industries) are among the more encouraging signs seen recently.
Ahead of today’s payroll employment report, we anticipated “a strong increase in nonfarm jobs for January.” It clearly didn’t work out that way and, as we noted yesterday, “the stock market appears to be in a forgiving frame of mind; and we can always blame the weather.” Thanks in part to positive earnings reports, Friday saw all of the big three stock market indexes advance to their highest levels in at least 30 months, gaining between 0.2% (Dow) and 0.6% (Nasdaq) for the day and between 2.3%(Dow) and 3.1% (Nasdaq) for the week. The S&P 500 stands at 1311 at Friday’s close, producing a total return of 4.4% for the first five weeks of 2011. The week was a bad one for the bond market, as the Barclays Aggregate declined all five sessions. The 10-year T-note’s yield closed the week at 3.64%, highest since the “flash crash,” and the twos, tens yield curve rose to 2.89%, about as high as it’s ever been. The recent rise in yields at the long end of the curve has been largely the result of rising real rates; by comparison, inflation expectations have only inched up in the latest up wave.
INVESTMENT OUTLOOK…The respectable year-end rally in stocks, fashioned out of improvement in leading economic indicators, continued early in 2011, extending the S&P 500’s total return to 100% since the market bottomed in March 2009. In reaction to the outbreak of protest and violence in Egypt, following on the same trends in Tunisia, stock market volatility, as measured by VIX, climbed back above 20% last Friday, the first time VIX has been that high in two months. To be sure, stock market volatility has since come down and in any case is still well off the awful levels of 2008-09. But, depending on the turn of events in Cairo, where Hosni Mubarak said Tuesday he will not run for re-election in the fall but protestors appear to want an earlier regime change, investors seem to be assuming for the moment that Egypt will not be the next “black swan.” We would not be surprised if the market’s flightiness of the past week is the first of the occasional bouts of volatility in 2011. For the moment, though, corporate earnings prospects remain positive, and if worse doesn’t come to worst in Egypt, the general trend of stock prices figures to be up.
Copyright © 2011 by Wright Investors’ Service, Inc.