Sunday, December 06, 2009

So did anything happen while I was away?

The market keeps rallying on hopes and dreams, the jobless rate FALLS, Dubai implodes......nope nothing to see here.

The market rally continues to stun everyone in the field. Now, even when the dollar rallies, stocks seem to move up. Again, if business prospects were improving, I'd say that this is a healthy indicator, but business prospects for everyone outside of those directly benefiting from stimulus efforts seem to be worsening.

Hat tip to Eric for pointing out that enterprise software sales are closing at just 13% while budgets are getting crushed for 2010. Unless you are a supplier of paint, paving equipment or orange vests for highway crews, I think 2010 might be another tough year. Side note, I spent a fair amount of time driving over the past 2 weeks and the amount of "infrastructure" spending is startling. However, it's almost all superficial infrastructure work. Literally, repainting lines on the roads or repaving roads. Very little work that will improve efficiencies for anyone, IMO. I'm a supporter of targeted stimulus, but this spending seems to be about as targeted as google ads.

Oh boy, the jobs report. How many times did I scream at the TV on Friday? Yes, the percentage of unemployed persons fell, BUT (there's always a but) it's just math games.

Here's what happened: Let's say in October 102 people out of 1,000 people in the labor force were unemployed. 102 divided by 1,000 produces an unemployment rate of 10.2%. Now, let's say 2 of the unemployed get tired of looking so they drop out of the labor force, the numbers for November now become 100 unemployed persons out of 998 people in the labor force. 100 divided by 998 = an unemployment rate of 10.0%. Hey, HAPPY DAYS ARE HERE AGAIN, because the unemployment rate fell!!!

Now, the numbers were larger, but this is exactly how the unemployment rate fell in November. More people stopped looking for work. Most of these unemployed persons that fell out of the labor market might be encouraged by the jobs report last week and might start looking again and that could cause a big swing upward in the unemployment at the beginning of 2010 -- in my example if 10 people decide to start looking again the rate would climb to 10.9% because now 110 people out of a labor force of 1,008 would be looking for work.

With regards to the jobs lost of just 11,000 this was surprisingly good, but again it comes with a caveat. Much of the out performance was due to temporary help hires. As I've said before this can be a good sign that companies are seeing an uptick in business so they hire temp workers before making them permanent. However, I suspect that this time around the increase in temp hiring is due to employers replacing permanent workers with permanent temporary workers. There is also some talk of a tax credit for hiring next year so it makes sense to avoid permanent hires right now.

The balance of the hiring came in 5 areas: Federal Gov't, State Gov't education, Local Gov't education, healthcare (ambulatory, home health and hospitals), and the mythical BIRTH/DEATH ADJUSTMENT. This "hiring" offset meaningful losses in goods producing jobs which tend to be higher wage jobs. Again, it's better to lose just 11,000 jobs than to lose 700,000 jobs like we were a few months ago, but remember not all jobs are created equal and it is a myth that corporations are actively hiring again. Don't lose sight of the fact that the bulk of the hiring was government and temp workers.

Finally, with regards to the stock market the ratio of bulls to bears is back at levels not seen since the dotcom era. This type of complacency tends to end poorly.


PS - It's good to be back in NNY, but as soon as I can find an employer looking for an analyst on the Kohala Coast, I'm out of here :)

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