FRIDAY JUNE 4, 2010

Ugly Unemployment Number

There is no way to sugar coat it.  This morning's unemployment report was ugly!  While the headline increase of 431,000 new jobs and the drop in the official rate to 9.8% appears good, the numbers are grossly distorted by the hiring of government census workers.  Backing out the temporary census workers, the economy only produced 40,000 new jobs.  Economists had forecast an increase of 200,000.  That is a big miss.  Keep in mind that the economy needs to create over 150,000 jobs per month just to break even with new entrants into the job market!

The economic numbers are sending conflicting messages.  As noted in this blog, the recent stats, including yesterday's ISM Service index, have shown decent strength, yet that activity is not resulting in employment gains.  The market was hoping for confirmation in the employment world.

I continue to believe that there is too much uncertainty for businesses to confidently add materially to their workforce.  As we learn more about the details of the healthcare bill, the promises of lower healthcare costs look more and more like a fantasy.  The demagoguery of the "rich" (that would be small business owners) continues unabated and the prospect of higher taxes on everything from income to capital gains is highly certain.  The horrific catastrophe in the Gulf of Mexico has led to renewed prospect of higher energy taxes.  Hungary is adding to the fears of a European contagion and the austerity measures being employed to prevent the contagion are certain to slow global economic growth.  No wonder businesses are hesitant to hire.

Nonetheless, I would point out that the economy has averaged, even with today's weak number, 125,000 new jobs over the last three months.  Manufacturing hours worked was up as was average hourly earnings.  These underlying stats would suggest that better days are ahead on the employment front.  Given the depths of the economic recession, investors should expect a rocky recovery.  And boy, the markets will be rocky today!  Enjoy!

POSTED AT 1899-12-30 08:49:00.0

KEN ENTENMANN, CFA
SENIOR VICE PRESIDENT AND
THE DIRECTOR OF INVESTMENT MANAGEMENT SERVICES

Ken is a Senior Vice President and the Director of the Trust and Investment Services at Alliance Bank, N.A. He has 23 years of investment experience and oversees the management of assets totaling $1 billion. He holds a B.S. in Applied Economics and Business Management from Cornell University and an M.B.A. from the William E. Simon Graduate School of Business Administration at the University of Rochester. He has also earned his Chartered Financial Analyst designation. He is a member of the Executive Committee of the Trust Division of the New York Banker's Association. He is also a director of the Central New York Community Foundation.

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