Friday, December 3, 2010

Doesn't Limited Jobs Growth Equal Higher Profits?

After a surprisingly weak employment report today shouldn't investors focus on the fact that less workers and hence salaries will mean higher profits for corporations. After all we already know that November was a blockbuster month for retail sales (see Mark Perry's blog) so the limited job growth isn't impacting spending. So why are all the headlines on jobs so doom and gloom? It's only gloomy if your looking for a job.

Only 50,000 private jobs were created in November which was a far cry from the 150,000 prediction and 160,000 created in October. It appears that the seasonal adjustments for November were whacky so don't be surprised if we see a large adjustment upwards. So why all the negativity? The market is holding up well so clearly investors get the profits impact better then economists.

After all adding 50K jobs last month and 160K in Oct is indeed job growth. Job growth leads to more income and hence spending. Might be lower then expected, might be slower then expected but those 210K workers have more money to spend. Not to mention we've now seen a full year of job growth, albeit weak growth. Still consumers must be much more comfortable going into 2011 that they'll keep their job making them more likely to spend more.

The bottom line though is the perfect scenario of good consumer spending combined with limited hirings. That adds up to massive corporate profits. Reported corporate profits have already surpassed 2007 highs and if not for some dilutions in the banking sector in 2008 the reported EPS for the SP500 would also be at new highs. Why then is the stock market still substantially below the October 2007 high in the upper 1500s?

It still boggles my mind that investors are more concerned about employees instead of the employer these days. With the constant trading and daytrading mindset nowadays, maybe investors have lost touch with the concept of 'owning' a business. Everybody seems to just rent stocks these days that they are more concerned about their neighbors job then corporate profits. Don't get me wrong, I want all my friends and neighbors to have jobs, but I'm not making an investment decision on whether they do or not.


Highlights of the negative mindset:

Via AP:


  • Private companies -- the backbone of the economy -- created only 50,000 jobs. That was down significantly from the 160,000 private-sector jobs created in October and was the smallest gain since January.
  • With hiring so weak, the unemployment rate rose from 9.6 percent to 9.8 percent. The jobless rate has now topped 9 percent for 19 straight months, the longest stretch on record. The rate could hit 10 percent next year.
  • "November's U.S. employment report is a painful reality check for those hoping that a meaningful acceleration in economic activity was under way," said Paul Dales, U.S. economist for Capital Economics. "The truth is that the economy is going nowhere at a time when companies are not willing to boost hiring."

Via CNBC:
  • "This points to not necessarily a turning point in the data, but maybe a reflection of how uneven the economic data is likely to be," said Jeff Kleintop, chief market strategist at LPL Financial in Boston.

Jobs report announcement on CNBC. Could they be any more negative? This is suppose to be a stock/bond markets station not a job creation firm. Disappointed yet again to not see a focus on the great profit margins from fewer jobs. Zandi made a great point that the report just doesn't feel right. Likely will see a big revision upwards. 









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