A Rorschach test. That’s what I thought of when I saw this morning’s January jobs report.
Market Roundup
On one hand, headline job creation missed expectations by a decent margin. We created only 151,000 jobs last month, compared with an average forecast for a reading of 190,000. That was one of the lowest monthly readings over the past couple of years.
The revised figures for the past couple of months show a clear deceleration, too: 280,000 in November; 262,000 in December; and now 151,000 in January.
On the other hand, the unemployment rate sank to 4.9% from 5% — putting it at its lowest level since February 2008. Average hourly earnings also rose a stronger-than-expected 0.5%, up from no change in December. Within industries, retailers added 58,000, leisure and hospitality added 44,000, health care added 44,000 and manufacturers added 29,000.
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| The jobs numbers are out, but markets are having trouble interpreting the figures. |
I’m not sure how that squares with reality, considering manufacturing shares are in freefall, the ISM manufacturing index is hovering at its lowest levels since the tail end of the last recession and multiple companies are warning of large layoffs. I’m somewhat skeptical about the retail adds too, given lousy sales over the holiday season. But if you take the data at face value, those are decent numbers.
On the other side of the ledger, the transportation and warehousing business lost 20,000 jobs. Mining lost another 7,000. Plus, temporary help employment fell by 25,000. That’s a potential leading indicator of declining full-time employment growth, assuming it persists for another month or two.Â
Again, there’s a little bit of everything for Wall Street in these figures. But what’s my take? I believe wage growth lags job growth, and job growth lags underlying growth in everything from retail sales to manufacturing to service-sector activity.
| “Wage growth lags job growth, and job growth lags underlying growth.” |
If we’re heading into a recession, or even dangerously close to one, the LAST place you’ll see it is in the monthly jobs report. And within the jobs report, the last place you’ll see it is in wages.
Many of the leading indicators I follow, and the activity in the credit markets, tells me the risk of recession is rising fast. So does the recent weakness in durable goods and services. Plus, we have now seen a couple months of weakening in the job-growth trend.
Add it all up, and I’d say this report isn’t very encouraging. It seems the market agrees with me, given the 211-point shellacking the Dow Industrials took. Or stated another way, I’ve been advocating a careful, cautious, hedged investment approach and nothing I saw today changed that.
Do you agree? Disagree? Is the unemployment rate decline enough to offset the slowdown in job creation? What do you think the Federal Reserve will, or should, do in response to figures like these? Do you take them as bearish or bullish for the stock market? Use the comment section to share your opinions.
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There were some lively discussions happening online in the last 24 hours, with topics like bank stocks, drug pricing, and oil in focus.
Reader Alain W. weighed in on banks, saying: “I completely agree. U.S banks will feel the contagion soon. It’s time to short the Financial Select Sector SPDR Fund (XLF).”
But Reader Max countered that: “It’s too late right now to short XLF and the individual banks. They are way below their 200-day moving averages and could bounce back temporarily at any time.”
Reader Tim added: “While the Bank of Americas (BAC) and Wells Fargo & Cos (WFC) and whoevers of the world certainly participate in leveraging, derivatives, currency exchange, and so on big time, they also have retail customers, insurance brokerage, trust services, etc. that serve the public … our public. The market, right now, is driven down more by sentiment than reason or fundamentals. In the end, fundamentals always win.
“Personally, I’m very, very close to buying in to BAC on the dip. My point being: Be careful in painting everything with the word ‘bank’ in its name and/or its description with the same brush. They’re not all the same color.”
Finally, Reader Mike C. said: “Let us not overlook or forget about credit card debt to the banks, oh yes, and the auto loans made with ‘Cash for Clunkers’ as a down payment. The maintenance is very expensive for our new middle class. So the banks will take it on the chin, and the bankruptcy courts will be jammed.
“As I travel around Georgia, Florida, and Alabama, I see multitudes of cars, boats, trucks, and four wheelers in front of homes with for sale signs. Signs of the times.”
Meanwhile, on the drug-pricing front, Reader Anke said: “It is criminal that drug companies can charge anything they want for their drugs and the government cannot negotiate prices for Medicare with the drug companies who spend millions on lobbying. In most other countries, there are some price controls on medicines. But here we pay anything the pharmaceutical industry demands. It is disgusting!”
And on the topic of oil and oil stocks, Reader Ross L. brought up the situation at ConocoPhillips (COP): “COP slashing their dividend may well be the first of many of the major oil companies to do so. One thing to remember is that COP is the exploration-and-production part that remained after the spinoff of Phillips 66 (PSX), the refining-and-marketing segment of the original Conoco Phillips conglomerate.
“Since COP’s profitability is directly correlated to the price of oil without the benefit of downstream refined-fuels sales, it should be no great surprise that this dividend-cut happened. The other major oil producer and refiners should have more staying power but are far from immune to dividend cuts.”
Thanks for the comments on this diverse group of topics. We’re all struggling with higher healthcare and drug costs, and I’d love to see a realistic solution as much as you would.
When it comes to dividends in the oil patch, I agree that the move by COP is probably just the first of many. So when it comes to helping subscribers generate safe, reliable income, I’ve been recommending higher-yielding stocks in other sectors like consumer staples and utilities in my Safe Money Report.Â
Lastly, I believe financial stocks are in real trouble and that bounces are likely to be temporary. It all goes back to the credit markets, which have been signaling that something bad is afoot for the past year. That was a key reason I aggressively dialed back stock exposure in Safe Money BEFORE the market tanked last summer, and added several hedge positions — positions that are working out nicely in this period of turmoil.
If you want to add any further comments, feel free to do so below.
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Twenty large companies are joining forces to push back against rising healthcare costs by forming a cooperative of sorts, according to the Wall Street Journal. The move by the likes of American Express (AXP) and Verizon Communications (VZ) will start with data sharing, and potentially expand from there. The idea? Give companies a stronger negotiating hand when dealing with the insurers who administer their employee-benefits programs.
President Obama proposed a new $10-per-barrel tax on crude oil in order to fund a wide range of transportation initiatives – from high-speed rail to traffic reduction. But the idea has virtually no chance in Congress, given the problems facing the energy industry and the fact the levy would likely be passed through to consumers in the form of higher gasoline prices.
Just when you thought former Turing Pharmaceuticals exec Martin Shkreli couldn’t get more hated, he spent his appearance before Congress smirking and smiling and pleading the Fifth. Then he headed over to Twitter to call members of Congress “imbeciles.”
It’s Super Bowl weekend, folks! Sadly, the Denver Broncos defense shut down my Patriots in the AFC Championship so I don’t have skin in the game. But it’s going to be a big day for food, beverage, and restaurant companies.
Buffalo Wild Wings (BWLD) sold 11 million wings last year, and the WingStreet chain owned by Yum Brands (YUM) is planning on selling 5 million this Sunday. Good luck to your team if it’s playing and hopefully, it will at least be a good game for the rest of us.
What do you think of the latest attempt by Corporate America to push back at rising healthcare costs? How about Skreli’s appearance in Congress? Does slapping another tax on oil sound like a good idea to you? And how about Sunday’s game – who are you rooting for? Hit up the comment section below and let me know.
Until next time,
Mike Larson
P.S. CNBC contributors Kathy Lien and Boris Schlossberg have prepared a report exclusively for Weiss Research about often-overlooked investments that could make you richer no matter what happens next in the global economy or on Wall Street. In fact, these investments allowed Boris and Kathy to win on 81% of their recommended trades in 2016.
Click this link to find out more!
Recommended Articles by 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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i certainly don’t disagree with you, mike. but i think you may be missing something. you’re seeing the details, but are you seeing the big picture?
is it possible this is just a classic sector rotation? out of commodities and into … what?
the problem is in the oil patch. but so is the solution. and the solution looks better than the problem. let’s just hope the problem doesn’t overwhelm us before the economy can benefit from this reset in commodities.
distress creates opportunities. you and i and everyone at weiss should be trying to figure out what sector will be the new bull when commodities bottom.
all this oil money that has been going to the middle east is going to stay here in america. the pain we see happening there right now, equally is the prosperity we’ll see here in due time. what sector will that money go to?
Oil is a symptom not the disease. Jim
$1,000 gold
Careful what you wish for. The hedges are coming off of the frackers and now they must enter the real oil price environment. They also are pumping oil at any price to stay afloat but my information is that in 6 months half will be bankrupt. If that equals prosperity I don’t see it. Fracking wells are of short duration so they must keep drilling and if the money dries up what do they do.
what’s happening in oil is just what markets do. the markets determine the price, not the seller. smart, experienced sellers like the saudis have learned the hard way not to manipulate the price, but instead to balance supply with demand to create stable prices. that’s exactly what they are doing now.
these low oil prices are here to stay. this is hugely bullish for america.
Somehow I doubt the Saudis long term objective is to stabilize the oil price at a low level. OPEC has indeed manipulated prices for years and will continue to do so,if they can find the discipline. Jim
jim, do you remember sheik yamani? he was basically fired by the kingdom for his unwillingness to manipulate oil prices. not that he was so noble, he said it wouldn’t work. the saudis found out the hard way he was right.
high prices hurt sales. jack up the price of anything and demand will drop off. every greedy business man goes through this debacle at least once, but never twice. contrary to what the world thinks, opec had a goal of stable oil prices because this is what maximizes profits. the markets determine the price, not the saudis, not the frackers, nor anyone else.
Mike,
I have a concern about your recommendation to buy shares of IEF. It appears from the information of its profile on Fidelity.Com, that it paid a dividend in February, but will not pay again until November, and then twice in December. Does that mean that if things should change in the bond market, and one needs to sell the holding of IEF before November, there will be no dividend payout? Does the possible gain in share price make this investment worthwhile?
The unemployment numbers are NOW all hokum. They no longer mean anything because the White House has totally fudged the mechanism. What you are quoting is 4.9% of a very small cohort.
The best way to look at employment is to see how many Americans are out of work. That number has been increasing consistently for the past 7 years and is now the highest in history: 94 million out of work (and some say this number is really well over 100 million). BTW, the working population of the USA is approximately 204 million as of last year (BLS).
Do you mean the labor force participation rate? If that falls, the unemployment rate will drop with no job creation. The unemployment rate is a ratio of two groups *within* the labor force; those who dropped out of the labor force aren’t counted at all.
I see bad oil loans everywhere. The banks are in trouble again. Cheap money and bad risk management again.
I agree its coming
The drug companies that impose exorbitant price increases are just young fools who never learned the number of times in the past 75 years when the federal government stepped-in with laws imposing price and wage controls when private industry didn’t act in the public interest. Calling members of Congress ‘imbeciles’ is going to have a strong bipartisan retaliation in the near future!
You express concern about drug price solutions; here are a few:
1. Stop subsidizing the rest of the world by having them control their prices while allowing the drug companies to pass on the costs of research to the US consumer; simply tell the companies they can not sell drugs cheaper in the rest of the developed world than they do here. No price controls needed; companies may have to temporarily exit other countries, but they sure can’t exit US market. Curent system is a formula for bilking the US citizens.
2. Stop advertizing what people can not buy without a doctor’s prescription (doctor’s don’t need advertizing to best prescribe for patients). Doctors usually cave to the drug demands of a patient, regardless of how needed the drug is – hence the advertizing.
3. Never prohibit any entity from negotiation. Medicare’s legal inability to negotiate prices is congress-dictated corporate welfare for the pharma companies, and is a direct result of pharma lobbying congress and plying them with money.
The Saudis have a lock on the gulf coast refineries through there decades old relationships and joint ventures while the rest of the exporting nations do not have much presence. They set the price and export to the USA (go figure). …. In the meantime, “President Obama proposed a new $10-per-barrel tax on crude oil in order to fund a wide range of transportation initiatives – from high-speed rail to traffic reduction”. Although such a tax stands little chance of passing congress, it points out that Obama has no clue regarding the state of global energy. In fact, the US should provide tax incentives to US oil companies to decrease imports and provide the US with self sufficiency. Such tax incentives would provide the economy with a serious boost, and unemployment relief in that energy jobs pay more than the subsistence wages the “newly employed” receive from the likes of McDonalds.
Mike,
The fact that you seem to believe the jobs numbers really bothers me. They are so manipulated that they are not worth the paper they are printed on.
Apart from the labor force participation rate, what should be focused on is the dubious birth-death model for small and medium-sized businesses. It’s based on an era of 10 or 20 years ago, when the number of businesses was rising. That number has been falling since 2009, and the BDM numbers are likely to be way off. Some months, the BDM correction is almost all the final result.
A good alternative would be the quasi-real-time tax withholding data. But the government has strongly resisted this approach. We have to wait for laborious and unnecessary revisions instead.
Hopefully the money not going to the Middle East will be used to pay down consumer and federal debt. Some of the money consumers save on energy will be used to pay down credit cards and car loans and the federal government can cut back the energy subsidies.
Hi Mike!
I’ve said it before and I’ll say it again, 2016 is a number 9 world year of ENDINGS, and this isn’t limited to the end of O’Bama—he’s half Irish. And regarding ANY oil stocks, I wouldn’t buy any because I believe that photovoltaic technology will help the world to get rid of the oil pollution, including hydraulic fracturing! Uranus (surprise changes, high technology and revolution) is still transiting Aries (pioneering and exploration) until early 2019.
WTH regarding the above post.
Bill, I wouldn’t mention Uranus on an investment site.
Regarding President Obama’s suggestion regarding adding an additional tax on a barrel of oil, I would rather see a tariff put on imported oil of $10 per barrel (or some other price) and try to get the American oil fields (fracking) back in production. At $35.00, plus or minus, per barrel, the American producers are sitting on the sidelines slowly (or, perhaps, quickly) going bankrupt. I would rather see Saudi Arabia, Kuwait, Yemen and the Emirates bear the burden of the tariff than have American producers losing their ability to have Americans use American oil first. Enough of funding grand lifestyles for sheiks, kings, etc.!
Amen! The tax and spend fool in the White House must have some new bunch he wants to give our money to. Some bunch with offices in Chicago and Manhattan, I presume.
Does our POTUS ever read what is going on in the world? Instead of kicking oil in the guts, where is a self sufficiency policy or a working plan with our oil industry to prevent collapse in prices???
I wouldn’t worry about the $10/barrel tax hastening the demise of frackers. They will not be paying the tax, we will. It is a de facto tax like Obamacare.
I’m really hesitate to draw conclusions about the oil tax proposal. Obama is very smart and surely has to be aware of its consequences, which tells me we really don’t know his true intentions yet. Jim
With all the treaties Obama has signed his hands are tied regarding tariffs on oil. America wants to be a world trader so tariffs on oil will not fly. America WAS a friend to the Saudi’s but with the new king that is disappearing fast. It also disappearing because American purchases of Saudi oil has dropped 40% due to fracking. The US government has really led frackers into a financial trap using them to get oil to be a “homegrown” product but as usual greed set in and now the frackers are on the ropes. They have set the world oil balance out of whack and now will loose their shirts greed again. Fair weather friends that fly away soon become foes. Its the same with Canada. Years ago the US was saying what a wonderful neighbor Canada was and that they would sell their “dirty” oil sands product to the US because they were neighbors and the US needed oil. Fast forward to today and now its cancel the Keystone pipeline, oil sands oil are dirty and we don’t want it we have our own now. Fracking is highly overrated as it is fast depleting resource and you must keep drilling to stay ahead of the game. I give it another 5 years and America will be knocking on Canada’s door to access their abundance of fresh water and in 10 years oil again. What are fair weather friends for??
Gordon, you are one of the few that understands the shale oil game. These wells feature forty to seventy per cent annual depletion rates. It’s like shaking up a coke bottle. We have been fracking for fifty years and knew the shale oil was there. It didn’t become viable until the Fed offered free money and we had the $100 price. As I understand it the shale oil companies have still spent $80 billion more than they have made anyway. The old fashioned Texas gusher returned 100 to 1 and pumped for 20 years. Shale returns,at best, 2 or 3 to one and is played out in 3 years. Jim
Call it a fee, call it a tax, call it a tariff, call it BS,,, none of which are good for the producer or the consumer. Just more dictatorial gov. playing the power game with someone else’s product and money.
Mule
the problem is Obama wants a 10 per barrel tax on domestic oil not on imported oil
Thanks for the letters. Don’t know where I read it but unemployment is easy to understand if you look at employment numbers. Fewer workers equals smaller percentages.
Bill its a government numbers game pick a number. Its like the old 3 card Monte game. All the 94 million workers that want to work and cannot find a job or just plain do not want to work but live off of the government are not included. Obama really looked vulnerable at his State of the Union address a few weeks ago giving out all those glowing figures on the US economy funny now the US stock market disagrees. You cannot make a silk purse out of a sow’s ear. The balance is now going the other way where investors and the voters are no longer drinking the government Kool-Aid. People even under educated ones are realizing that the government and figures are full of lies and misrepresentations. You can fool some of the people some of the time but not all of the people all of the time.
The accuracy of jobs reports are questionable as various methodologies exist with which these figures are measured, each with its own set of assumptions of what actual employment actually is. Furthermore, is it possible that these reports may be rigged to paint a false perception of what the true state of the economy is? To grasp the bigger picture one would need to objectively investigate accompanying reports to connect the dots from such reports as durable goods and retail sales to truly assess what the true state of the economy is. Needless to say, jobs reports do have the ability to cause an increase in intra-day volatility minutes before its even released!
I agree with this assessment!
The Government should be hold accountable for CORRECT statistics in this area! They are getting paid to do a proper job!
I would not be surprised to see a short term rise in the markets. Yes, everything seems to say they are going to hell, but they should have broken the recent support level this week and didn’t. The Dow Transports have been trending up since mid January. Unless the S&P 500 breaks support on Monday, we could see a hundred or more point rise over the next week or so. Play it as you choose, the overall trend is down, unless the Fed joins the negative interest bunch. The high priced buck will kill any possibility of an improving economy.
I agree, Chuck. However, this market is rolling over and has a long way to drop after this short covering rally.
Obama is right . They should have a tariff on imported oil . F. K. The shirks and kings.
They will never do it b/c the Repubs suck , but most definitely it should be done to transfer wealth back to the usa
Bull, are you suggesting that there is no wealth in the US because ” repubs suck “? Wages and growth have not occurred on this country, nor any country because of the enormous debt overhang. You can’t keep borrowing for present gratification in lieu of future spending. Eventually, somebody has to pay the debtor. Both the Dems and Repubs have contributed to this problem
the way i heard it bull Obama wants to put a 10 dollar tax on a barrel of oil from our country not Saudi Arabia or Iraq or iran and the 10 dollar a barrel tax is for new technology in wind and solar programs AND WHAT I THOUGHT WAS A COMPLETE JOKE IS WHEN HE SAID ………………………………. DONT WORRY ILL HAVE THE OIL COMPANIES PAY FOR IT ………. now if mr prancing elite in the white house knew anything at all and he would know that most the oil companies have forecast 2016 as losing money 3 quarters possibly 4 quarters or longer if oil stays at these prices so what Obama is really saying is we will all be paying somewhere between 36-50 cents per gallon of gasoline that not the oil companies pay but we pay at the pump
Obama is smart? Really! He is a lot of things but I would simply call him overwhelmed.
Good thing his handlers have things under control! Following their plan to force a single monetary unit.
So your previous reports (Weiss) state that the market fall will end May at the latest and the market will go to new highs, yet you now say we are headed toward recession/depression. Which is it? Either way you can claim you predicted it. I smell a rat! I’m getting tired of your predictions that go both ways!!! Am getting ready to end my subscription!!!
I think the market is going a lot lower with intermitten rallies. Until we start paying down out debt the economy will sputter.
There is simply to much debt in the global economy.
Just remember that China will be pretty much off the table next week as far as good news, bad news or indifferent news is concerned. The bear hibernates next week for Chinese New Year. When the bear wakes up after that, he will be hungry.
I just read elsewhere, that when you subtract The BLS “seasonal adjustment”, the U.S. didn’t gain 151,000 jobs in January, it LOST almost 3,000,000 jobs. Now, I can’t vouch for the accuracy of this, but if it is anywhere near correct, this country is in a world of trouble. We all know politicians are dishonest – it comes with the job. This is extreme, though. Do NOT vote for a new term for any running politician, even if you think he/she has done a decent job. Kick them all out.
A lot of that 3 million could be temp hires who lost their jobs after the holiday season, of course. That figure wouldn’t be typical of other months — I hope.
Mike
I keep seeing discussion of the raise in wages in the jobs report. Our state just had a $1.00 increase (10% increase) in minimum wage and I understand that many other states had raises in minimum wage starting in January also. Can you or anyone give us information on the relation of minimum wage increases and the increase in salary as seen in the jobs report?
Mike: The Federal Reserve made a mistake in raising interest rates to .5%. Mrs. Yellon raised rates into weakness, not strength. I agree that our economy is going into recession. We are carrying too much debt. So is the rest of the world! The interest on the debt is currently 200 billion dollars a year. If nothing is done about real decreases in spending, the interest on the debt will take up more and more of our budget! We are in uncharted waters. The next President should call for an international conference. The first item on the agenda is to begin negotiations on writing off and reducing this debt for everyone. We should also advocate ending the currency war that we started in 2010, which is causing resentment among nations. Currency devaluation is a zero sum game, no one wins! We the people lose purchasing power every time this is done. The social unrest in our country and the rest of the world is very serious! We need to propose a gold standard for the 21st century. The nations of the world have no monetary rule. The Central banks of the world have too much power. The amount of money that should be in a countries economy should be based on the law of supply and demand. A countries interest rates are supposed to be its price signal. I would appreciate your comments. Regards, Robert Calabro.
Hi Mike, my old memories from economic courses remind me that a better economic outlook xan arise fears from certain economic actors, also maybe among speculators : inflation may still be feared even in times when we start leaving the defltion era, which is another monster…In fact the market can regulate itself like nature in some way, what is crucial is to arrange so that the least economically favoured ones are not left behind. So it is not bad at all that the speed of jpbs creation has slowed down, to my mind it can permit some temporary adjustments so thatr the chart keeps going up at the same rythm, what matters is to let a minimum manoeuvring room. I will stop here cause I am far from being an economic expert.
I can not believe what I am reading…. that the FEDs should lower the interest rate!
To what, minus -6% to promote growth? !!Great Idea!! Shaft the middle class saver. The real unescapable problem is that the FED should have NEVER lowered the interest rates. Those whose debt exceeded their productive contributions to the market place should have been allowed to fail and liquidate. If Green Idiot and Bern dummy did not tamper with natural market forces, this new crash would not be an issue. The strong would have succeeded and the weak would have failed, so then a new economy would have recovered on strength not upon ZERO interest financing trillion dollar share re-purchasing. Stop whining! In this market Cash is your friend. Be like Buffett, wait for blood in the streets and then pick up the bargains.
You are right. Classic Austrian economics. Jim
It is inevitable that the Dollar is headed for a collapse, along with other artificially propped up currencies. Did the Fed raise interest rates, even at the cost of harming American business, and consumers, in an attempt to halt or delay that collapse? They may have simply sped it up, instead.
Historically, wealth flows to the richest 3% when the GOP is in power and to the 97% when the Democrats are in power….. Simple Economics 101: As wealth flows to the 97%, the Velocity Of Money INCREASES as spending increases and jobs are created to make the products (In America) to produce the products demanded by the INCREASES in spending… Just the opposite happens when the wealth is flowing to the richest 3%….
Check it out on Google: “When does the velocity of money Increase?”… I’d post it here, but Weiss will not allow links unless it is to their sites…
more liberal b/s eagle 495 I see you have both hands out your one of those gimme voters
oh I checked your site it say forbes commentators are their own opinion of the author I checked your author further it turns out he also writes his view in other liberal venues and this author is a long term democrat
Newtek Business Services, a large BDC, recently polled independent business owners, and with over 960 respondents, the results were rather interesting. Some 24 % were interested in adding to their staff. Only 3% planned reductions, while 73% had no immediate plans either way. This would seem to indicate that, while most thought business would not increase significantly, they weren’t too worried about a reduction. About a quarter of owners even believed in the prospects for expansion. This does not appear to support worries about a large recession or depression by the people on the scene. Are they right or wrong?