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Ben Bernanke to Announce QEIII due to Poor Unemployment Numbers: BAML

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Ben Bernanke to Announce QEIII due to Poor Unemployment Numbers: BAML

The United Stated Bureau of Labor Statistics reported that the unemployment rate declined from 8.3 percent in July to 8.1 percent in August. According to the agency, the economy added 96,000 non-farm jobs.

The average hourly wage was $23.52 in August. The average hourly earnings increased by 1.7 percent for the past 12 months.

According to BMO Capital Markets, the jobs increase for the month of August is below the 125,000 average consensus expectations of analysts.  The firm believed that the jobs growth is slowing, but hiring in temporary employment remains stable. In August, there were 2.53 million temporary jobs, the number dropped by 2 percent, but it was up by 8.9 percent year-over-year. See table below:

Ben Bernanke to Announce QEIII due to Poor Unemployment Numbers: BAML

BMO Capital Markets gave an outperform rating for several companies engaged in temporary staffing, including AMH Health Care Services (AHS), Cross Country Healthcare, Inc. (NASDAQ:CCRN), Hudson Global Inc (NASDAQ:HSON), Manpower Inc (NYSE:MAN), On Assignment, Inc. (NYSE:ASGN), Robert Half International Inc. (NYSE:RHI), and Trueblue Inc (NYSE:TBI).

Ben Bernanke to Announce QEIII due to Poor Unemployment Numbers: BAML

Employments in the health care sector increased by 17,000 in August. Hospitals added 6,000 jobs and ambulatory health care services added 14,000 employees.

Figures from the Bureau of Labor Statistics also showed that the average monthly jobs growth is 139,000, lower compared with the 153,000 average monthly jobs gain in 2011. Data also revealed that manufacturing jobs decreased by 15,000. Companies in the auto industry including Ford Motor Company (NYSE:F), General Motors Company (NYSE:GM), and Chrysler Group Llc. are expected to hire more workers, after reporting solid sales performances in August.

Analysts from Barclays PLC (LON:BARC) (NYSE:BCS) noted that the employment report for the month of August showed a month-to-month volatility in the labor trends, moderate and choppy growth. According to them, “We continue to believe that a choppy economy is a constructive backdrop for the staffing stocks, as uncertainty likely keeps many employers hesitant to make full-time hires (taking on additional fixed costs), and instead skew more towards temporary labor. This has been reflected in strong y/y U.S. temporary growths vs. that of total payrolls over the course of a choppy labor recovery…”

Barclays PLC (LON:BARC) (NYSE:BCS) analysts said they prefer Robert Half International Inc. (NYSE:RHI) more than Manpower Inc (NYSE:MAN), because the company is more focused on professional staffing and it generates 72 percent of its revenue in the United States. The company also benefits from skill shortages and low unemployment among educated workers. On the other hand, ManpowerGroup’s revenue declined by 65 percent in Europe, and it continues to focus on lower skill staffing. Analysts said MAN is still good based on a long-term perspective due to its strong management and solid secular positioning, but the benefits were unlikely to offset short-term pressures from the large European exposure.

Data from the agency also showed that the food services & drinking places hired 28,000 employees. The professional & technical services sector employed an additional 27,000. The agency also reported that 11,000 individuals engaged in computers systems and related services, and 9,000 people in management and technical consulting services gain jobs in August.

Bank of America Merrill Lynch (BAML) notes that the unemployment rate decreased for the wrong reasons.  Unemployment rate falls for the wrong reasons: The unemployment rate fell to 8.1% from 8.3%, which, at first glance, is good news. However, the components tell a different story. The decline in the unemployment rate owed to a plunge in the labor force of 368,000, which more than offset the decline in household employment of 119,000. The labor force participation rate has collapsed and is now at the lowest level since September 1981. Similarly, the employment-to-population ratio has remained stubbornly low; since the recovery started in mid-2009, the economy has only added enough jobs to keep up with population growth. This is clearly disappointing and worrisome for Fed Chairman Ben Bernanke.

Fed/Ben Bernanke implications: Today’s report adds ammunition for additional easing from the Federal Reserve’s Chairman, Ben Bernanke. BAML thinks one of two announcements is likely on September 13: they either formally announce QE3 or they give a strong signal that QE3 is coming shortly. Moreover, we see a growing probability that the QE program is open-ended; that is, tied to improvement in the economy rather than limited to a fixed period of time.

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