August 9th, 2010 11:55 AM by Nick Rapplean
The July Employment Report was, as you well know, a total disappointment, and it followed on a higher number for the latest applications for unemployment insurance—479.000 claims this past week as against 457,000 the week before.
The employment report noted a net loss of 131,000 payroll jobs. Though there was an increase of 71,000 private jobs, the number was erased by the end of 202,000 government Census Bureau jobs, not to mention other government jobs—particularly jobs eliminated by state governments.
It is worth reminding ourselves that we need, at the very least, 125,000 new jobs just to keep up with the demand for work from people coming of age and immigrants. The situation is very bad.
Meanwhile, the unemployment rate, compiled from surveys of homes, remained the same, 9.5%—not because there wasn’t any more unemployment to report but because fewer people were motivated to look for a job, which means we have a smaller “work force” and the number of people without jobs in that work force consequently looks a bit larger.
Now, the employment report is a great example of a lagging indicator. It tells us very little about where we’re headed; instead, it reports on where we’ve been. It would make sense for analysts to note the figures and move on, but they don’t. They scream and shout about them. As do the prices of investments.
The 10-year T-note’s yield, for example, fell all afternoon after the employment report was published. Starting the day Friday at 2.916%, it ended the day at 2.826%, giving rather immediate validation to bond guru Bill Gross’s decision to get his firm, PIMCO, back into buying Treasury securities. Gross is now talking about the likelihood that we will experience deflation soon. (Indeed, he argues that we’re already there.)
Now, as the market has taught us rather emphatically over the past year, global investors store their money in Treasury securities when they get worried about how the world economy is going. If we get a negative announcement about the debt situation in Greece, for example, and European banks seem potentially threatened, a lot of money finds its way immediately into Treasury securities. And one result is a lower yield on those securities, which is the same to say a lower value for existing securities.
There is an additional ingredient just now. If people rush to the safe haven of Treasury securities, it apparently isn’t because of any overabundance of confidence in the American economic recovery. Indeed, the euro gained against the dollar all week—a none-too-subtle expression of concern about the America economy.
Also—adding immense confusion (for me, at least)—the Dow, after dropping by about 1,000 points after the employment announcement, bubbled back up to within 22 points of its former level over the course of Friday. Based on what? This worries me. There is no justification for it.
We will probably continue to have extremely low rates. But this happy-face stock market is precarious, to say the least.