The Bureau of Labor Statistics released the November 2012 employment reports with Total non-Farm Employment rising by 146,000 and the Household Survey falling by -122,000. The Household Survey is my preferred data series for employment and the trend remains nicely positive-see the chart below. The press release can be viewed at the link: bls.gov News Release-Nov 2012
The BLS made specific comments regarding the effects of Hurricane Sandy:
“Hurricane Sandy made landfall on the Northeast coast on October 29th, causing severe damage in some states. Nevertheless, our survey response rates in the affected states were within normal ranges. Our analysis suggests that Hurricane Sandy did not substantively impact the national employment and unemployment estimates for November. BLS will release the regional and state estimates on December 21st.”
Of particular interest, I call your attention to this comment:
“Manufacturing employment changed little over the month. Within the industry, job losses in food manufacturing (-12,000) and chemicals (-9,000) more than offset gains in motor vehicles and parts (+10,000) and wood products (+3,000). On net, manufacturing employment has changed little since this past spring.”
Hurricane Sandy struck in the heart of the food and chemical manufacturing area of New Jersey. Anyone who has driven down I95 cannot help but notice the smellathon of aromas as one drives along this section of I95 as one passes a myriad of food processing and chemical manufacturing operations. It is interesting that the sectors which showed employment losses were hit by Sandy while vehicles and vehicle parts which were not, showed gains in employment. I associate the rise in November 2012 vehicle sales as due to Sandy as some of the ~250,000 reported damaged by the storm were being replaced.
It is my guesstimate that Sandy may be responsible for the employment pattern in this report and that these jobs reported as lost are more than likely to be recovered in future months. We will have to watch the details of the coming employment reports to confirm if this is what has occurred. At the moment there is not enough detail to do anything more than offer suppositions.
Nonetheless, both vehicle sales and my preferred employment measure, the Household Survey, continue in decent uptrends.
My approach is called “Empirical”. It is by observing the current economic trends and interpreting them in the context of historical patterns that one gains insight to the current economic environment. Then, performing an identical analysis using the investment markets and contextualizing market behavior with commentary from some 200+ CEOs and portfolio managers with established credentials, lets one develop reasonable expectation in various sectors of the economy, asset classes and global economies. Part of this work uses the “Prevailing Rate” which I have discussed in prior comments as a rate of return benchmark which is applied to help determine the more attractive asset classes. At all times one needs to remain aware that market psychology can distort any valuation analysis and even if a strong historical relationship is present that it may still take several years for market participants to adjust. Predicting a price and date at which something is likely to occur is simply not possible! The best one can do is to be appropriately positioned, be patient and monitor the markets and economic data continuously and make adjustments to positions as we become aware of market excesses. If we are reasonably positioned and sensitive to major risks, then the portfolios should over the breadth of the business cycle reflect appropriate results.
At this point in the business cycle there is much to like but for construction. I call your attention to a very insightful Alan Greenspan interview on Bloomberg: Greenspan– “..painless solution to US debt is fantasy” . This is a 16:36min video but I recommend that you listen to the entire piece especially to his comments at 6:30min in where he says:
“…despite its faults… US financial system…is the most efficient…we use less savings to get more productivity than any (other)country”
AND at 10:10min he says:
“2 tier economy…90% represents GDP from assets less than 20yr life doing well enough to have employment at 5.6%-5.9%” “It is the 8%-10% of the economy based on producing long lived assets, 20yr and longer…residential and commercial building…which is down by 50%” “This explains all the stagnation.”
I thought he presented a clear and insightful analysis AND one which if we examine the current direction of housing and the Architecture Billing Index indicates that this part of our economy is reviving. We do have the 1 = 8 relationship from the Mortgage Bankers Assoc. that every new Residential Construction Employee results in 8 newly employed in the general economy in support of residential housing sector. The current trend is that Residential and Non-Residential Construction are coming back and we know that the positive economic effect is substantial.