Friday, April 2, 2010

The Jobs Report - Good Friday Edition

For the third month in the last five, the U.S. job market has started to show signs of a pulse. Nonfarm payroll increased by 162,000, while the unemployment rate held steady at 9.7%. Overall, the Civilian Labour Participation Rate (the proportion of individuals employed versus the total population of individuals of employable age) is at 64.9%. Temporary workers, both for the Census and the private sector, continued to dominate the growth side of the ledger, as did healthcare (more on that later).

Whereas the unemployment rate is reported as 9.71%, the true U.S. unemployment rate is far higher than this, when we consider the fact that the Civilian Labour Participation Rate has declined from 67.3% in March 2000 (when the secular bear market began) and 66.4% in January 2007 (when the housing market collapse was confirmed), it is apparent that many individuals have simply left the job market. If we were to simply look at the unemployment rate using the past participation rates, unemployment rates are closer to 12.93% and 11.35%.

What does this all mean? Simply put, we are not nearly close to peak employment, and thus many inflationary pressures internal to the U.S. should remain low (such as housing and consumer capital goods). We should also hope that the U.S. Federal Reserve takes this into account when considering interest rate hikes in the future (after all, you don't want to alienate further parts of the population permanently out of the market).

The interesting labour trend of the last 3 years has been the increase in temporary and healthcare workers. Increases in temporary workers makes sense in the worst recession since the 1930's - companies are unwilling to risk their futures on a "shaky" economic outlook. However, the trend of increasing health care workers may be a sign of where the next economic bubble may occur. In the past, we have seen the first economic gains during recessionary times in areas where the bubbles form, like in the finance and construction sectors in the early 2000's and the technology sector in the early 1990's. I know it's early on, but the opportunities to make supernormal returns may present themselves in this field for the next 3-4 years, as investors identify the trend, and returns continue to grow. Compound this with the new healthcare bill, and we may have a winner (temporarily, of course!).

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