INSIGHTS
JAN
12
WEEK AHEAD...
The week jobs number on Friday surprised everyone, including us, and the theories are all over the Internet as to why every economist and financial wizard could miss such an important data point by so much.
We felt that the jobs data would come in towards the high side; around 220,000 and they came in at 74,000. Looking at the top end and the numbers underlying the report, we can see some cause for concern but we are still firmly in the camp of growth and expansion.
Having the unemployment rate go down to 6.7% is a non issue other than the fact that media types have been making a rather big deal that that number only shrunk because there are less people looking for or in the job market.
Here is where we have a divergence of opinion about people disappearing and that’s why we want to try and understand something.
If people are leaving the jobs arena, what are they doing? According to the numbers, over a million people have stepped out of the job market. Where are they? What are they doing? How are they eating? Putting a roof over their heads, Clothing their children?
We can tell you that the number of people receiving food stamps has been steady. Welfare roles in most states has been shrinking for years and yet, over a million people are not in the job market (they don’t have jobs, they aren’t receiving unemployment and they aren’t actively looking for jobs). Something doesn’t jive with these numbers.
Our feeling is that this mass exodus of people is still working but probably “off the books” and while they don’t produce tax revenue, they still have dollars to spend on food, shelter and clothing.
So, while we look and say that things are not getting better as fast or as strong as we would like, we do believe that most people are holding their own and doing what they have to do to survive.
Not an ideal situation, but as the economy builds some momentum, this anomaly is not unusual.
There is a slew of important data coming out this week along with earnings reports that may hold few surprises.
First and foremost will be retail sales. The consensus shows flat to down a fraction and we don’t think there will be any highlights here. While we were expecting a strong Christmas season, it just wasn’t to be. We do think retail sales will pick up during the year but we are too early in the recovery and the skittishness of consumers will continue.
The PPI is expected to rise by 0.4% and this would be welcome news to the Fed that has been looking for a little pickup in inflation. We think that might be a little high but if we do see that, expect the market to react accordingly.
Industrial production will be out and we do expect the estimates to be low, probably come in about the same as November’s 1.1%.
The week will be littered with housing starts and more inflation numbers but the biggest news will come from the financial sector. Earnings will be out and the one thing that banks are doing right now is making money. While we have taken issue with what they are doing with that money, the fact remains that banks are the healthiest they have been in years and they will continue to do well the entire year. Does that translate to higher stock prices? It should, but there is an inherent risk in the financial sector and while we have had legislation that has tried to curb the risk taking and creation of complicated derivative instruments, banks still use capital for risk and that has always been a house of cards.
We felt that the jobs data would come in towards the high side; around 220,000 and they came in at 74,000. Looking at the top end and the numbers underlying the report, we can see some cause for concern but we are still firmly in the camp of growth and expansion.
Having the unemployment rate go down to 6.7% is a non issue other than the fact that media types have been making a rather big deal that that number only shrunk because there are less people looking for or in the job market.
Here is where we have a divergence of opinion about people disappearing and that’s why we want to try and understand something.
If people are leaving the jobs arena, what are they doing? According to the numbers, over a million people have stepped out of the job market. Where are they? What are they doing? How are they eating? Putting a roof over their heads, Clothing their children?
We can tell you that the number of people receiving food stamps has been steady. Welfare roles in most states has been shrinking for years and yet, over a million people are not in the job market (they don’t have jobs, they aren’t receiving unemployment and they aren’t actively looking for jobs). Something doesn’t jive with these numbers.
Our feeling is that this mass exodus of people is still working but probably “off the books” and while they don’t produce tax revenue, they still have dollars to spend on food, shelter and clothing.
So, while we look and say that things are not getting better as fast or as strong as we would like, we do believe that most people are holding their own and doing what they have to do to survive.
Not an ideal situation, but as the economy builds some momentum, this anomaly is not unusual.
There is a slew of important data coming out this week along with earnings reports that may hold few surprises.
First and foremost will be retail sales. The consensus shows flat to down a fraction and we don’t think there will be any highlights here. While we were expecting a strong Christmas season, it just wasn’t to be. We do think retail sales will pick up during the year but we are too early in the recovery and the skittishness of consumers will continue.
The PPI is expected to rise by 0.4% and this would be welcome news to the Fed that has been looking for a little pickup in inflation. We think that might be a little high but if we do see that, expect the market to react accordingly.
Industrial production will be out and we do expect the estimates to be low, probably come in about the same as November’s 1.1%.
The week will be littered with housing starts and more inflation numbers but the biggest news will come from the financial sector. Earnings will be out and the one thing that banks are doing right now is making money. While we have taken issue with what they are doing with that money, the fact remains that banks are the healthiest they have been in years and they will continue to do well the entire year. Does that translate to higher stock prices? It should, but there is an inherent risk in the financial sector and while we have had legislation that has tried to curb the risk taking and creation of complicated derivative instruments, banks still use capital for risk and that has always been a house of cards.