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.
|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.
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.
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.
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.
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,
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.