Decoding the employment figures

(9 Jan) Many have been questioning whether my meds are properly balanced or perhaps I might be enjoying too many adult beverages while creating these notes. The reason for the askance looks and comments about my, apparently, malfunctioning logic circuits is due to my continued positive market outlook, in contrast to the seemingly never-ending onslaught of "bad", "terrible", "horrible", "not seen since the depression" economic news. Some have even suggested a starring role in "One Flew Over the Cuckoo's Nest."

Let's analyze Friday's lead news item as a for instance for how I remain so positively focused.

Ugly labor market numbers

One headline read that "we haven't lost as many jobs as we did in 2008 since the end of WWII." The other says, "the unemployment rate (7.20%) is the highest in 16 years." That's end of the world stuff - isn't it? No, it's definitely not.

First of all - and not to make light of those affected - this means we have about 93% of us EMployed. In the case of the 1945 numbers, the war had ended and all those jobs were no longer needed. More to the point, today our population is much, much higher, so the number - while not small - is a whole lot less impactful than it was then. In the latter case, my trusty HP 10b2 tells me that would have been 1983 -coincident with the end of a large recession.

A correlation perhaps???

As one would expect, the market was off on the day but not so much as the news would have lead many to believe. Everyone expected it would be bad and that's exactly what we got. Employers in almost every sector cut jobs at very high rate in December. And, due to the lag effect of what's happened, they're likely to continue to do so over the next few months.

The number of hours being worked by those who do have jobs fell by 1.1% in December. That's the largest decline since 1982. On the good news side, average hourly earnings, which is the earnings of production workers, increased 0.3%.

Anti-conventional wisdom

Dr. Brian Wesbury has crunched the numbers and come up with a conclusion that, in my mind, gives credence to why the market didn't cave on this news. (It also reinforces my ongoing, strong anti-conventional views.)

He says that, since "consumer prices fell 1.2% in December, this means that the purchasing power generated by each hour of work increased about 1.5%. It also means that even taking into consideration the decline in the number of hours worked, that total purchasing power related to workers’ cash earnings went up 0.3% in December. Contrary to conventional wisdom, (don't you love that?) real consumption increased in November, by 0.6%. We expect another gain, of about 0.4%, in December, supported by inflation-adjusted gains in workers’ earnings."
So, there may be fewer workers right now but those who are working are earning more real money and spending more, as well.

Don't let the naysayers prevent you from seeing and acting upon what's going on today. Successful investing is done with a forward bias.

I've had personal experience with the markets of 1974, 1982 and all the others in those periods. What you take away from those times, as well as the recent unpleasantness, is this. Quality investments, whether individual companies, funds or bond issuers, managed by people of integrity are not immune from market drops. However, the big difference is that, when the dust settles, they will be the ones that survive and thrive.

As will those who invest in them...