Where can jobs be found in this country? Which industries are doing better and which are doing worse?
Market Roundup
The ADP Research Institute tries to answer those questions for us the first Wednesday of every month. Then the Labor Department weighs in two days later. So what did ADP say in its October report today?
==> Overall employment grew by 182,000 last month. That was the weakest reading since July, and a deceleration from September’s downwardly revised 190,000k figure. It also confirmed we’ve downshifted from the kind of 200,000+ numbers we saw throughout 2014.
==> Manufacturing continued to struggle, with another 2,000 jobs lost on the heels of last month’s 17,000-worker drop. The service sector came in stronger. But the rate of job gains there dropped to 158,000 from 182,000 in September. Financial sector growth weakened notably, as did job gains in professional and business services.
==> Small businesses continue to add positions at a healthy clip. Those with 49 or fewer employees added 90,000 jobs. But large companies with at least 500 workers on their payrolls added only 29,000 jobs. That was a sharp deceleration from 101,000 in September.
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| Are more people destined for the unemployment lines? |
So if I had to sum up the message here, it’s that the U.S. economy is starting to bend. The burden of a slower world economy and a weak energy sector, among other threats, is causing job growth to decelerate.
Large manufacturers and other multinational companies are getting hit the hardest. But as layoffs mount here at home, their struggles will likely spill over into more domestically focused industries and businesses, too. The slowdown in service sector growth may be the first sign of that.
Will it “matter” to the markets? Well, the negative economic news of late certainly didn’t derail the October rally in the S&P 500 or the Nasdaq-100, or the gains in the first couple days of November. But I can’t help but note the economically sensitive Dow Transports remain depressed, and that many of the divergences I’ve highlighted persist.
So maybe the answer is that it matters to SOME stocks, many bonds and several commodities. You can profit in select stocks that have strong, company-specific stories attached to them – as we’ve seen in technology. You can profit in less economically sensitive names that offer yield protection, solid ratings, and corporate catalysts. Two names that foot the bill in my Safe Money Report just moved nicely higher.
But broad, unhedged bets on the market? In an environment where bear market trading behavior can increasingly be found in many corners of the financial world? That’s a bridge too far for me here, despite the rally over the past few weeks.
So what do you think of the latest labor data? Is the relative strength in services and small business hiring enough of a positive to offset the weakness in larger, multinational industries? Do you agree or disagree with my market stance, and do you think these jobs figures support my view or undercut it? Make sure you head over to the Money and Markets website and weigh in when you get a minute.
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Yesterday’s piece on Bill Gross and his opinions on zero percent interest rates sparked quite a bit of conversation online.
Reader Tony D. agreed with Gross’ view on the counterproductive impact of current policy, saying: “ZIRP is placing a huge drag on the economy by changing the normal economic incentives to borrow and lend. Money must have a time component (i.e. an interest rate return) to function properly. I am afraid the long term consequences of the current Fed policy have not yet manifest themselves.”
Reader Andoheb also agreed via these comments: “ZIRP has dramatically widened wealth inequality and I suspect many bitterly resent this. ZIRP also hurts the economy by encouraging huge mal-investments in marginal enterprises.”
Reader Henry A. picked up on that message, too, writing: “Rates set by central planners that deviate from market rates are always disruptive to the economy. They tend to cause mis-allocation of capital that creates speculative bubbles and crashes. The purpose of the artificially low rates set by the current Fed is to encourage more credit (read: debt). But unless you can produce real growth, more debt just makes you even more vulnerable.”
But Reader Bud W. said that while it may be bad medicine, cheap money is the best option we have right now: “With all the borrowing, low rates, while not a good policy, are enabling heavy borrowers to stay afloat. If market-set rates were allowed, a lot of people as well as a lot of governments would not be able to function.”
Keep those comments coming if you haven’t added any yet. You can do so using this link.
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What do you know? Now several major banks are reportedly being investigated for rigging the U.S. Treasury market.
That follows several rounds of charges and massive fines related to rigging mortgages, short-term interest rates, commodities, currencies, and the World Series outcome. I’m kidding about the last one (I think). The investigation focuses on the 22 so-called primary dealers, who are closely involved in government bond auctions.
Will China make the effective transition from a manufacturing/industrial economy to one focused more on consumer spending and services? That’s the question the Wall Street Journal tried to address today.
Some investors have bought domestically focused Chinese stocks because they’re adopting the positive view. But plenty of other data suggests it will be a struggle, and that the overall economy remains vulnerable. What are your thoughts here?
Would you buy shares of the U.S. Postal Service if it were to launch an IPO? Because that’s what a fairly large number of Japanese investors just did in that country.
Japan Post Holdings Co. and two other subsidiaries focused on banking and insurance launched successful IPOs, raising $12 billion in a move to privatize mail service. The U.K., Belgium and Italy have launched similar efforts in the past.
German Carmaker Volkswagen is in even hotter water today after news that it may have understated carbon dioxide emissions, rather than just nitrogen oxide pollution. The firm’s shares dropped almost 10% after Volkswagen said roughly 800,000 vehicles may be affected by the new problems — and that they could cost as much as 2 billion euros to fix.
Is this the kind of news that can push Volkswagen over the edge? Do you think investing in mail service is a good play domestically or internationally? What do you think of the news that big banks allegedly rigged yet another market? Head online and let me hear about it.
Until next time,
Mike Larson
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
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Our trade deficit shrank 15% in September from the August level, as Imports shrank by 1.6%. Does this indicate retailers are preparing for a lower holiday shopping season? Possibly so, since jobs are drying up, as shown by the lower hiring figures, and the large layoffs in many large companies over the year. What is the role of Obamacare in all the layoffs? How is it forcing many companies to increase efficiency and reduce work-forces to hold down expenses? Has the law of unintended consequences struck again?
Re FED behavior:
Yellen continues to yank our chain and so directs (or miss- directs) the markets much a Bernanke did.
Are the Fed’s comments calculated to produce markets fluctuations in the narrow band we have had in the last year? Or is it just stupidity?
Concerning the rigged bonds by large banks. It is not surprising considering the what happens if the bond market implodes. It give them time to manuever and in some ways mimic what has happened in Greece in the EU.
Concerning the buying of the post by the Japanese. Yes I would buy it if the US government would actuallly take their hands off. The continue to cut it loose and take control again. Given the opportunity to make profits and keep them, they cetainly have demonstrated in times past that they can make a profit as a business.
Concernign the Fed, Yellen can not “Win”. If the Fed takes a strong position either way it will precipitate a market colapse. No QE will help nor a definitive increase in rates will prevent economic reaction. Only time and a dulling of the senses and perceptions will allow us to ride out the economic storm ahead of us.
Looking at the US Gov’t debt, which is unaffordable, how can they raise the interest rate (raising Gov’t debt), when they cannot handle the existing debt. Is this just one step closer to bankrupcy?
SF
You are right. I do not know the ultimate outcome but it does not look good since the president and the Fed are not taking corrective-coordinated action. The Fed and Pres. Obama have worked themselves into a corner with ZERO interest rates and UNCONTROLLED SPENDING (NOW OBAMA’S $19 TRILLION DEBT). The bottom line is…….at what point is the Obama debt ($9 Trillion of the total NATIONAL DEBT built up over ~ 230 years ….plus the other ($10 Trillion) …………at what point is this HUGE SUM………….UNSUSTAINABLE) ???
When all the economic data are parsed, to evaluate you end up with an equation containing 5 simplified variables (BRITS). These are taxes, revenue, inflation, borrowing rates and spending. An evaluation of the equation will tell you if debt is increasing in a fashion that is unsustainable. Manipulate any one variable (ala the Fed with zero rates that will now rise or Obama with uncontrolled spending) and you change the equation outcome (of course). The USA is now in a situation where our debts on a trend of confirmed unsustainability.
An explanation of this equation and the analysis it provides would take some time but I am sure others are familiar with it and could chyme in with additional detail.
Great roundup. The GDP numbers from 2014 and 2014 are being revised down, so the fantabulous jobs numbers for those years will also be revised down. Pay attention to the Atlanta Fed’s GDPNow project, which tracks this stuff closer to real-time. It’s projecting 1.5% real growth or lower for this year. It has a better track record than the conventional methods, which have a laborious, dragged-out revision process.
Correction: 2013 and 2014.
And, 1.5% or less for Q3, not the year. Although, for the year, it will be under 2% ….
I saw that the Daily Sentiment Indicator reached 75% bullish this morning. This is a contrarian indicator, and such a high reading is vary bearish. Todays modest pullback may, or may not be a sign of a pullback,, but it is interesting that it occurred right after that reading on the DSI.
Exactly what does Janet Y mean by monetizing the banks vs. the government doing a bail out? Does this mean a bail in like was done in Greece? I listened to as much of her speech as was available on Bloomberg and ended up feeling very insecure about funds left in my bank account.
You’re dead on Mike in your stance and your recos.(timing is not possible till the bell tolls). The jobs numbers will get worse as the economy deflates and decelerates. This mess won’t be fixed till the bitter medicine is swallowed and passed on into the foul sewer of history.
mule
The post office could be run at a profit but not as long as it’s run by a bunch of gov. idiots.
mule
Sure it could. But then you better hope that you live on a profitable route. Or forget about getting mail. And it wouldn’t take an act of congress to raise delivery rates, so who know what that first class letter will cost you to mail. But the framers of the constitution thought that it would be a good idea to have guaranteed mail delivery so they wrote it in. Never mentioned anything about making a profit.
I think we in the U.S. should do what Iceland did:
Let those banks fail if they are going to fail and
put the heads of those banks in Prison.
DO NOT BAIL THEM OUT.
Where’s the “like” button when you need it?
Mike-
You know, everyone speaks of the “transition to a consumer-based economy” as if it’s the holy grail. Sorry to be a negative Nancy, but is buying more junk good for the economy or the soul over the long haul? What if we were an “infrastructure, education, and research-based economy?” We might grow more slowly, but we might have better values, grow in a sustainable way, avoid soar/crash cycles, and more.
I’m a capitalist from the word “go,” but don’t believe that consumer growth is the be all or end all. Wall St. only prefers it because it produces recurring revenue when we throw things away and buy again.
Best regards,
Caine
After all the money that has been printed, it looks like the Feds chickens are coming home to roost… and the taxpayers will get to foot the bill again. It doesn’t matter what party is in power, they all look and smell the same as political gridlock will continue to be the excuse for nothing to happen while each party blames the other for inaction…
No doubt there are folks out there chopping at the bit to go postal corporate. This country already has a postal service that works if congress would leave it alone. My mail comes error free 6 days a week. Just wish the mail person is femail.
The Internet and Fed Ex have rendered the Post Office obsolete. It’s an over glorified junk mail service. We prove it here every night. Jim
Private postal systems are already out there in the form of private courier services to give the post office competition. The real priority should be to privatize Obamacare, which is a bloated monopoly created by bureaucrats for bureaucrats.
‘m sending you an idea I’ve has for some time and hope you agree now would be a good time to put this idea into gear.
Regards,
Ray
The Kilowatt Dollar
Dear Reader:
This is the most opportune period we’ve had in over 100 years to retire the Federal Reserve and move into a bright new era with solid, absolutely defined money that will have the same longevity as gold and would be available in infinite abundance. The IMF’s continual manipulation of the funds would have no function. In fact existence of the IMF itself would become unnecessary. The economy should be left to itself to attain its own balance. Constant monetization of our debt makes a financial catastrophe inevitable. If the US were to adopt the following ideas it would have an international effect within a short time.
In 1971 when Nixon jumped out of the gold standard and created the petrol dollar as the new standard, he and Volker didn’t go far enough. There was no way there was enough physical gold to service the world economy but energy was a good start at replacing the gold standard but we opened ourselves to manipulation of our currency by a bunch of uneducated, third-world Bedouins. If they had gone just a few inches further and predicated the value of the dollar on all forms of energy we would have a stable and worldwide currency today.
Like gold, the new energy currency would have infinite durability, be infinitely divisible, impossible to counterfeit, readily portable, and easily storable as computer entries or as one-use computerized script in small or anonymous transactions such as in grocery shopping. An important feature would include the use of prime numbers to assure each monetary unit is encoded with a primary identity and used one and only one time. After use, when it is finally returned to a bank, it would be retired forever—and not put on a back shelf as a reserve. The quantity of currency would be created only on a basis of need but could be reserved as a future loan for use anytime in the future. If the money were stolen, it could be frozen before it was spent or the person using the money could be almost immediately identified when he tried to spend it.
It would be absolutely defined as the product of the volt, ampere, and second. All three of these physical quantities are absolutely defined to an uncertainty of a few parts per billion or better. Their product is called the volt-amp-second or watt-second and has the same value anyplace in the world and, in fact, even over the entire universe! The watt-second is a very small unit of energy. I propose it be designated as the kilowatt dollar, a unit of convenient size. The kilowatt-hour has a value of about 11¢ where I live. In translation of old currency to the new Kilowatt dollar an agreement would have to be reached on values that would remain constant in perpetuity.
A kilowatt is a measure of energy so it could be generated from any existing electrical generation scheme including coal, oil, nuclear, tidal change, waterfalls, wind and/or solar and all joined together on the national power-grid. Keep in mind, precious metals are nothing but place-keepers: energy is life!
Some politicians are calling for a flat tax to fund the government. With the new currency, a discount of whatever the politicians think is an amount of funding required to run the government could be taken from each currency unit generated. Some politicians want a flat-tax of 20%: others think 10% is sufficient. In any event, the IRS would disappear. This will have to be worked out. People would be given the choice of keeping their present “green-backs†or exchanging them for this new currency. I’d bet within a short time the old currency would be hard to find except in museums.
All materials produced by chemistry can be stated in kilowatt-hours based upon thermodynamics. Thus the energy to produce one pound of copper, for example, could be easily computed. Similarly, the cost of producing a ton of cement can be calculated– etc, etc. The pricing of raw materials like wood could be calculated by the kilowatts used in its cutting, transportation and shaping at the sawmill. With this exercise we would be shocked at the prices put upon raw materials and building costs. There are many flaws in pricing that could lead to sharp reductions in their correction.
Not all the problems can be addressed here but if you would like I’d be happy to join a group in making decisions on flat taxing and production and also in creating guidelines on compensation. It would be interesting to see what value many present-day company directors actually have. A new scheme would have to be developed to address the concept of interest because this new money would be absolutely constant so its risk, therefore, would be zero.
My background includes about 20 years in the Nuclear Chemistry Division of Lawrence Radiation Laboratory in at the University of California, Berkeley as a Staff Scientist III. But I have a wide range of interests beyond science and since that interest comes from a desire to learn rather than formal training maybe I would have fresh eyes on the monetary mess we find ourselves in today.
Looking forward to your response,
Regards,
Ray G. Clem
Ray, that sounds to me like a system to turn on both printing presses and oil pumps. Remember, figures may not lie, but liers can figure.
In the words of Captain Jack Sparrow, “You can always trust a dishonest person to be dishonest….It’s the honest ones you can’t trust……”
This statement may very well apply to today’s situations….
When I was young everyone talked about the Transportation Index being a leading indicator; if it isn’t hauled there nothing can happen with it downstream. That should still be the case today.
I thought I had left my reasons for the weakness in American manufacturing earlier this week? Didn’t see it? Do you censor?
KC