Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

Posts Tagged ‘jobs market’

The Six-Year Boom in Part-Time Work

By for Profit Confidential

The Six-Year Boom in Part-Time WorkOne week ago today, the Bureau of Labor Statistics reported 288,000 jobs were added to the U.S. jobs market in April. The unemployment rate fell to 6.3% from 6.7 % in March. (Source: Bureau of Labor Statistics, May 2, 2014.) Even the most optimistic of economists weren’t expecting a jobs creation number this big.

But it’s just the same old story…

When you look closer at the details of the jobs market, the employment picture actually looks terrible.

First and most important, the number of long-term unemployed in the U.S. economy remains very high. As of April, individuals who were out of work for more than six months made up 35% of all unemployed in the jobs market. The longer they are out of work, the harder it will become for them to find another job.

The number of part-time workers in the U.S. jobs market continues to increase. More part-time employees essentially means less personal earnings and, eventually, less consumption.

In April, there were 7.46 million Americans who were working part-time—up from 7.18 million in February and 7.41 million in March. These workers are working part-time because they can’t find full-time work.

Back in early 2008, the number of part-time workers in the U.S. economy was below five million. (Source: Federal Reserve Bank of St. Louis web site, last accessed May 2, 2014.) Yes, we’ve created close to 2.5 million part-time jobs since the Great Recession—that’s the majority of all jobs created since 2008.

Adding to the misery, low-wage employment in the U.S. jobs market continues to soar. In April, more than 30% of the jobs to be had … Read More

The Truth Behind Friday’s Jobs Market Report

By for Profit Confidential

More Jobs Created but Underemployment Rate Goes UpBoy…did investors ever get excited about Friday’s jobs market report. In case you haven’t heard, in March, 192,000 jobs were added to the U.S. economy.

The chart below shows stock market investor reaction after March’s jobs market report was released Friday morning; and investors bought more stocks!

Sure, the March jobs market report showed some improvement. But investors overreacted, as usual. In fact, for me, it’s just more of the same old thing: investors are taking any type of good news as an excuse to push stock prices higher, which is a classic sign of a market top.

S&P 500 Large Cap ChartChart courtesy of www.StockCharts.com

Deep in March’s jobs market report, we just see more of the same structural problems that have been plaguing the U.S. economy for years now.

In specific…

  • 15% of all the jobs created in March were in the low-paying food services and drinking sector. That’s 30,000 jobs.
  • The number of part-time workers in the economy continues to rise at an alarming rate. In March, there were 225,000 more part-time workers than in February—there are a total of 7.4 million part-time workers in the U.S. economy!
  • The long-term unemployed in the U.S. jobs market continues to rise. In March, they accounted for 35.8% of all unemployed. Right now, the average duration of unemployment for an American worker is 35.6 weeks. At the end of 2007, it was 17 weeks. (Source: Federal Reserve Bank of St. Louis web site, last accessed April 4, 2014.)

Finally, the underemployment rate—which includes people who have given up looking for work and people who have part-time jobs, but who want full-time work—remains very high. … Read More

The Stock Market Needs to Do This in 2014 Before I Invest More in It

By for Profit Confidential

Why Investors Need to See It to Believe It in 2014This is an odd stock market. On one hand, you don’t want to miss out on any of the upward moves, which is why you should continue to ride the gains; on the other hand, you also want to make sure you have an exit plan in place. (See “Time for Investors to Create an Exit Strategy?”)

As we move toward the end of the first quarter, the one thing that is clear is the difference in the market behavior this year versus the same time in 2013, when everything was moving rapidly higher with minimal regard for the underlying market fundamentals.

As I wrote in these pages in January, this will be a more difficult market in which to make money compared to the previous few years.

The move by the Federal Reserve under Janet Yellen to continue to dismantle the quantitative easing that was put into place by former Fed Chair Ben Bernanke a few years ago has continued into 2014 with the third straight month of cuts to the central bank’s monthly bond buying.

The gradual $10.0-billion-per-month reduction in the Fed’s monthly bond buying will likely continue until the program reaches zero early in the fourth quarter, unless, of course, the economic renewal stalls.

What this means for the stock market is that the drying up of easy money from the Fed will continue to put a damper on the money available for speculating on stocks, especially those in the emerging markets. And as bond yields rise, there will be more of a shift to bonds.

We are already seeing the impact on the … Read More

My Top Investment Strategy for a Stalling Stock Market

By for Profit Confidential

How to Guarantee a Selling Price for Your StockThe current stock market sentiment is bullish and based on the charts, there are indications that the market wants to go higher, especially technology and small-cap stocks.

The S&P 500 is eyeing another record-high and it may just reach it by the time you read this.

While stock market investor sentiment continues to display bullish new highs and new lows, there’s also a sense that the road to higher gains will not be an easy path.

The economic renewal is maintaining a muted pace, in part due to the harsh winter conditions, but what if the economy was actually showing signs of slowing?

Jobs growth in February improved over January, but the jobs market still has not reached a level of self-sufficiency without continued help from the Federal Reserve via low interest rates.

What I expect, after looking at the stock market indices, is that we will likely see new records broken on the horizon. (Read “Why I Believe the S&P 500 Could Easily Reach 2,000 in the Upcoming Months.”) However, the advance will be more hesitant than in 2013 and the past years, since the current bull market is into its fifth year and is very much absent of a major stock market correction, based on my technical analysis.

Given this, I’m somewhat nervous, but there are alternative investment strategies you can consider at this time.

If you feel the stock market may pause and trade in a sideways range through the spring and summer months, you may look at writing covered call options on some or all of your existing long positions that have associated options…. Read More

Is the Housing Market Really a Hot Spot for Investors?

By for Profit Confidential

Urban Housing Market Booming with PotentialNew York City is a colossal urban jungle, but what strikes me is the surging housing market rental prices in not only Manhattan, but also the strong price appreciation in the borough of Brooklyn.

Average home prices peaked around $550,000 in early 2006, prior to a steady decline since then. Yet if you look at regions, especially Manhattan and Brooklyn, the demand for housing and rentals is strong, and this has created a surge in rental prices.

What has been apparent in New York City over the past decade has been the clean-up of the city, along with the rapid development in the surrounding areas close to Manhattan, such as Brooklyn. A look at Brooklyn shows an area that is rapidly growing with multiple new businesses, hotels, and housing market projects reclaimed from former industrial lands.

Whole Foods Market, Inc. (NASDAQ/WFM), for instance, built its largest outlet in Brooklyn that was previously on industrial land. There are now plans for further development in the area. The end result has been a boom in the housing market in Brooklyn for both property buyers and renters. A look at the rental prices in Brooklyn show rental rates as high as $5,000 a month or more for a two-bedroom apartment. The former docklands in Brooklyn have been transformed into a beautiful urban area with paths, expensive condos, and a great view of New York City.

The rise is staggering and clearly indicates a booming housing market there.

The situation in Brooklyn and New York City is indicative of many areas across the country.

Just take a look at the S&P Case-Shiller Home Price … Read More

Why I Believe the S&P 500 Could Easily Reach 2,000 in the Upcoming Months

By for Profit Confidential

S&P 500 at 2,000 and Buying Opportunity on the WayIt’s amazing how the stock market can easily reverse course from bad to good and vice versa. When the threat of Russia invading Crimea picked up, the stock market retrenched; but it didn’t last long, as the subsequent withdrawal of Russian troops led to a stock market in the following days that drove the S&P 500 to yet another record-high and the NASDAQ to its highest point in 14 years. Now whispers of 5,000 are being heard. (Read “Where to Find the Best Buying Opportunity in This Stock Market Going Forward.”)

As I said in a previous column, the retrenchment in the stock market presented a buying opportunity; although, it’s too bad the selling didn’t last longer.

The Chicago Board Options Exchange (CBOE) Volatility Index (VIX) continues to hover in the mid-teens, where it was throughout the majority of 2013 when the stock market boomed. The current relatively low reading in the VIX suggests the stock market will likely head higher, which means investors should stay put and add on weakness.

A look at the S&P 500 shows a likely break at 1,900 this week if the bulls can hold on, and it will just be a matter of time before we see the index take a run at 2,000, which I surmise could happen sometime in the second half of the year; however, it could occur in the next couple months, if the bulls decide to drive the buying and if the economic renewal continues worldwide. A move to 2,000 would represent only a 6.38% advance from the prevailing level at around 1,880 as of last Friday. … Read More

Reaching the Point of Maximum Optimism

By for Profit Confidential

Bear Market Twists News to Lure in More InvestorsThis past Friday, the Bureau of Labor Statistics reported 175,000 jobs were added to the U.S. economy in the month of February. (Source: Bureau of Labor Statistics, March 7, 2014.)

The way the media reported it…

“Friday’s jobs market report caught the market by surprise,” was what most media outlets were telling us via their untrained reporters. The expectation was an increase of 149,000 jobs in February (after a dismal December and January jobs market report) and so the usual happened—stocks went up and gold went down on a jobs market report that was only slightly better than what was expected.

The consensus, from what I read, is that the jobs market in the U.S. economy is getting better. Of course, I think of this as hogwash. And as I’ll tell you in a moment, this is the kind of misinformation that is characteristic of what happens in a bear market in stocks, not a bull market.

Within February’s jobs market report, we find:

The long-term unemployed (those who have been out of work for six months or more) accounted for 37% of all the unemployed in the U.S. economy. The longer a person is unemployed—likely because that person has not been re-trained for the jobs market—the less likely it is that person will eventually find work.

Today, once a person becomes unemployed in the U.S. economy, that person remains unemployed for an average of 37 weeks! This number remains staggeringly high. Before the financial crisis, this number was below 15 weeks. (Source: Federal Reserve Bank of St. Louis web site, last accessed March 7, 2014.)

When you have a … Read More

Why Are So Many Homebuyers Backing Out of Their Contracts?

By for Profit Confidential

Homebuilders Post Steepest Decline in Confidence Ever RecordedJust as the majority of Americans think the U.S. jobs market is improving, there’s a notion in the air that the U.S. housing market has rebounded and is healthy again. I don’t believe this to be true.

Just like the government’s official unemployment number is manipulated because it excludes people who have given up looking for work, when we took a closer look at the stats we hear about home prices, new home sales, and existing home sales, we didn’t like what we found in them.

Home prices increased to unprecedented levels in 2005. At social events back then, everyone talked about how much their home or vacation property had gone up in value and how they were getting deeper into the housing market. Few talked about the reckless lending activities of the banks that were the cause for the rise in home prices.

We now hear new homes are being sold at a new record pace. Buyers are apparently rushing to buy houses again, and the housing market is hot once more. Sadly, underlining the strong sales of homes, the number of cancelled sales orders compared to overall sales (commonly referred to as the cancellation rate) is going through the roof.

In 2013, D.R. Horton, Inc. (NYSE/DHI) had more cancelled orders than it did in 2012—7,751 cancelled contracts to buy homes compared to 6,657 in 2012. The cancellation rate for this homebuilder in 2013 was 24%. (Source: D.R Horton, Inc. web site, last accessed February 18, 2014.)

Other homebuilders are having the very same problem. KB Home (NYSE/KBH) reports its cancellation rate in 2013 reached 32%—that means one out … Read More

Ten Million People Left Out of Employment Statistics?

By for Profit Confidential

Three Reasons Why This Will Be a Bad Year for StocksAs I have been pointing out to my readers, the “official” unemployment numbers issued by the government are misleading because they do not include people who have given up looking for work and those people with part-time jobs who want full-time work.

In January, there were 3.6 million individuals in the U.S. economy who were long-term unemployed—out of work for more than six months. (Source: Bureau of Labor Statistics, February 7, 2014.)

Those who are working part-time in the U.S. economy because they can’t find full-time work stood at 7.3 million people in January.

Add these two numbers into the equation and the real unemployment rate, often called the underemployment rate, is over 12%. Meanwhile, the official unemployment rate from the Bureau of Labor Statistics sits at 6.6%—that’s the number you will hear politicians most often quote.

But if there’s a group of policymakers that looks past the “official” unemployment numbers, it’s the Federal Reserve.

At her speech before the Committee on Financial Services, U.S. House of Representatives in Washington, D.C. last week, Fed Chief Janet Yellen said, “Those out of a job for more than six months continue to make up an unusually large fraction of the unemployed, and the number of people who are working part time but would prefer a full-time job remains very high. These observations underscore the importance of considering more than the unemployment rate when evaluating the condition of the U.S. labor market.” (Source: “Semiannual Monetary Policy Report to the Congress,” Federal Reserve, February 11, 2014.)

Like all economists, Yellen knows that when an individual has a part-time job then their income isn’t as … Read More

Why the Winter Storm Is Skewing More Than Jobs Growth

By for Profit Confidential

Winter Storm Skewing More Than Jobs GrowthOld Man Winter appears to be killing the retail sector and the economic renewal. Extreme cold and nasty weather has engulfed about 70% of the country, reaching as far south as Georgia, North Carolina, and Texas, which don’t traditionally experience winter weather.

All that nasty weather means less driving to the malls and shops, which, judging by the numbers, appears to have been the case over the last two months. And if consumers don’t spend, the retail sector hurts and this translates into softer gross domestic product (GDP) growth.

Retail sales contracted by 0.4% in January, which represented the second straight month of declines following a revised contraction of 0.1% in December, according to the U.S. Department of Commerce. The poor showings were attributed to the weather.

With consumers staying at home, we are hearing whispers that fourth-quarter GDP growth could be revised downward from its initial 3.2%.

And while it’s too early to call for the economy to weaken, continued bad weather could mean just that. Now there are, of course, other reasons for the lackluster retail sector metrics.

There’s still a sense that the jobs market continues to be fragile following the creation of a mere 74,000 jobs in December that was blamed on the weather. Yet January was only marginally better with the creation of 113,000 jobs, which was well below the 185,000 estimate.

The jobs numbers are horrible, and unless they start to improve, I expect consumers to continue to feel hesitant about spending in the retail sector.

As I wrote in a previous commentary, investing in the retail sector will be much more difficult this … Read More

Why Have So Many Americans Stopped Looking for Work?

By for Profit Confidential

If the Job Numbers Are Getting WorseOn Friday, we learned that the U.S. economy added a lower-than-expected 113,000 jobs in January and the “official” unemployment rate had dropped to 6.6% from 6.7% in December. (Source: Bureau of Labor Statistics, February 7, 2014.)

How can we create so few jobs and have the unemployment rate improve? It’s because the way the government calculates the unemployment rate is skewed. (It gets me outright mad to listen to politicians tell us the jobs market is getting better, when in fact, it’s not.)

The most obvious problem with the government’s way of calculating the unemployment rate is that it excludes people who have given up looking for work and those who have part-time jobs but want full-time jobs. If we were to include those two groups, the underemployment rate (as it is referred to) sits at 12.7%—and it’s been above 12% for a very, very long time. (This is something you didn’t hear President Obama talk about in his State of the Union speech two weeks ago.)

Now if we look a little deeper, we discover a much bigger problem in America. People who have the ability to work are leaving the jobs market!

What I’m talking about is the catastrophic decline in labor force participation in the U.S. economy.

Take a look at the chart below. It illustrates the labor force participate rate.

Civillian labor force Participation Rate Chart

You will note that from about 2002, which is the same year gold prices started moving up, the percentage of the U.S. population in the labor force started to collapse.

Labor force participation is simply the number of people who are employed plus those people looking … Read More

Strategies for Defending Your Portfolio in a Down Market

By for Profit Confidential

What Investors Can Learn from the Super BowlIf you watched the boring Super Bowl game on the weekend, you’d have realized that a strong and superior defense can go a long way against a sound offense. But the battle in the trenches was easily won by the defense, and it’s an analogy I use in my trading strategy.

January ended on a sour note, being the first down month since August 2013. With the losses, we are now witnessing an uprising of the bears suggesting 2014 will be a negative year for the stock market. This reasoning is based on the Stock Traders’ Almanac that suggests there is a 46% chance of losses this year. I’m not convinced the stock market is heading lower, but the current stalling and inability of the stock market to move higher is a red flag. Despite an extremely oversold technical condition, I have yet to see any signs of strong buying support emerge—and in my view, this is worrisome and likely means more losses.

The irony in January was that the S&P 500 and Dow Jones Industrial Average actually lost more ground than the higher-risk NASDAQ and Russell 2000, which only lost 1.76% and 2.89%, respectively.

The key will be to watch how the S&P 500 reacts at its key support levels around 1,750 to 1,775. We already saw a bounce off this level, and now the index is staging a retest. As I have said in a recent commentary, failure to hold could see the index fall to 1,700, based on my technical analysis.

The stock market is failing to see any major positive catalyst. Earnings season has been average … Read More

2014: The Year of the Short Seller?

By for Profit Confidential

Market Returning to Normal Without a CorrectionThe more this stock market rises, the more we are seeing the bears emerging from the woods, talking about how a nasty stock market correction is on the horizon.

In my opinion, based on the last few years, we could see the stock market correct about five percent or so. A sell-off could also be much more if triggered by a major event, such as really bad earnings or an increase in the rate of tapering by the Federal Reserve.

But while I do feel the stock market is vulnerable, I also believe stocks will advance higher this year, as long as the economy and jobs market continue to improve. (Read “Could This Bull Market Last a Decade—Or Longer?”)

Of course, there are also the bears out there who are becoming increasingly agitated with every passing day and every new record set by the S&P 500 and Dow Jones Industrial Average.

It’s not that these short sellers are wrong. In fact, many of the companies these bearish investors decide to short are indeed bad companies that don’t deserve to partake in the overall bullish bias in the stock market. The problem faced by these short sellers, which I have also faced in my trading, is their inability to fight the upside momentum that has encased this bullish stock market.

Look at the horrible downward move by the ProShares Short S&P500 (NYSEArca/SH) exchange-traded fund (ETF) in the chart below.

ProShares Short S&P 500 Fund NYSE Chart

Chart courtesy of www.StockCharts.com

Just when you think the stock market should be headed downward, nothing happens or we see a rally following a small down day. That’s the way … Read More

1,500 Applicants for 50 Jobs? The Reality in America Today

By for Profit Confidential

Stock Market Finally Aligning Itself with Economic RealityIn New York last week, 1,500 people lined up for 50 apprenticeship positions as painters and decorators. These are union jobs, and only 500 applications are being accepted. Some hopefuls lined up in front of the District Council 9 office for days in extremely cold weather. If they are able to get the job, they will receive $17.20 an hour during the first year. After one year, they may get hired as a full-time employee. (Source: Eyewitness News, January 10, 2014.) This equates to about $37,000 per year considering one would work 40 hours a week.

Hold on a second: I thought the jobs market was strong in the U.S. economy? How come we are seeing such massive lines for a very small number of jobs?

What I just mentioned above is not an isolated event. I have reported other events like this in these pages before—a large number of people applying for very few jobs. It’s a fact that continues to be ignored: the U.S. jobs market remains bleak and the better-paying jobs are just not there.

In the entire year of 2013, the total non-farm payroll jobs market grew by 2.03 million jobs. But the majority of these positions were created in low-paying jobs.

Retail trade jobs in the U.S. economy increased by 358,400 last year—about 18% of all jobs created in 2013. The well-paying sectors of the jobs market, such as construction and manufacturing, didn’t see as much growth: construction jobs increased by 98,000 and manufacturing jobs in the U.S. economy increased by 63,000 in 2013. Together, the higher-paying jobs made up less than eight percent of … Read More

Pathetic December Job Numbers Proof 2014 to Be Challenging Year

By for Profit Confidential

100114_PC_lombardiWhat happened?

The Bureau of Labor Statistics (BLS) reported this morning that only 74,000 jobs were added to the U.S. economy in December. Most economists were expecting 200,000 jobs to be created in December—way off reality. The December increase in U.S. payrolls was the slowest pace in almost three years.

But it gets worse…

The underemployment rate, which I consider the “real” measure of the jobs market in the U.S. economy, was unchanged in December at 13.1%. The underemployment rate includes those people who have given up looking for work and those people who have part-time jobs but want full-time jobs.

The table below shows the official unemployment rate versus the underemployment rate for 2013.

U.S. Official Unemployment Rate vs. Underemployment
Rate, January-December 2013

Month Revised Official Unemployment Rate (U3) Underemployment Rate (U6)
January 7.90% 14.40%
February 7.70% 14.30%
March 7.50% 13.80%
April 7.50% 13.90%
May 7.50% 13.80%
June 7.50% 14.30%
July 7.30% 14.00%
August 7.20% 13.60%
September 7.20% 13.60%
October 7.20% 13.70%
November 7.00% 13.10%
December 6.70% 13.10%
 
% Change Jan.-Dec. -15.19% -9.03%

Data source: Federal Reserve Bank of St. Louis web site,
last accessed January 10, 2014.

What the above chart shows is that despite what we heard about the U.S. economy improving in 2013 and despite the Federal Reserve creating over $1.0 trillion in new money in 2013 to help the economy, the “real” unemployment rate declined by less than 10% in 2013, from 14.4% at the beginning of the year to 13.1% by the end of the year. The number of unemployed people in the U.S. stands at a still-staggering 10.4 million.

Of the 74,000 new … Read More

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