Employment
Reports Volume 2
Today the unemployment rate and labor force participation
rate were posted. Now, something to keep
in mind is that the market is keeping a very close eye on the employment
picture. The general consensus is that a
good employment number means that the Fed will begin to taper its asset
purchases and increase the interest rate, reducing liquidity. So, bad news on the employment front mean
good news for the stock market and good news on employment means bad news for
the stock market. Crazy world we live
in, right? You can see this play out in
the last two days. When employment
looked to be on the rise according to the ADP report, the market sold off. Now that the picture doesn’t seem as rosy,
the market is up. Looking at the
payroll/employment picture, the economy needs to add 1M jobs per month to reach
the pre-pandemic trend by late 2022.
The unemployment rate is at 5.8%. Still well above the pre-pandemic low of
3.5%.
Labor force participation is at 61.6% and is below the
pre-pandemic rate of 63.4%. I think this
is a big reason the unemployment rate fell because today’s BLS jobs report was
disappointing.
The most interesting chart to me right now is the average
hourly earnings chart.
Now earnings are always rising but I think we could be seeing
this take-off.
Here’s the earnings chart by percent change:
This gives us a better picture of the increases that are
happening. Typically, the month-to-month
increase is in the .25% to .40% range, but what we are seeing now is a jump and
stop kind of action. This tells me those
business owners, who need workers, are increasing wage rates to get workers
back to work. As competition for workers
heats up, we could see some big jumps.
This leads to more spending money in the workers’ pockets, enticing them
to spend more, driving up costs.
It’s telling to me that President Biden feels the need to
address the nation on the employment picture today. I’m not quite sure what he is thinking but I
don’t intend to tune-in to find out.
Until the left wakes up from the idea that it’s ok to pay people to not
work, we are going to struggle to get back to a full employment picture. I think we could be easily confronted with a
stagflation scenario, where employment stays sluggish and the Fed keeps the
printing presses running hot.
Durable Goods
The financial press may make a lot of the chart above. It shows new orders placed by
manufacturers. In an expanding and
healthy economy, orders will rise. With
material shortages abound, a dip in the orders is of no surprise to me. The list of commodities up in price and
commodities in short supply from yesterday’s alert dovetails easily into the
durable goods report.
Gold and Silver
Yesterday we had a good sell-off in the precious metals but
after today’s poor employment numbers gold and silver were back on the rise. This situation is a lot tighter than I
thought. Neither gold, nor silver are at
their high for the week but I am shocked to see such a quick turn-around.
Portfolio
I’m not comfortable yet giving a model portfolio. I think there is a lot of factors that should
be taken into account for each individual’s situation. Are you willing to take on maximum risk and
trade short-dated options and futures? Are you more conservative and want ETFs
or individual equities to trade? Is your
portfolio your retirement nest-egg that should be guarded with great caution or
do you have a Robinhood account where you spend your gambling money? Maybe you are
somewhere in between? For now, I’ll post
what I’m doing in my own portfolio and you can make up your own mind. Here’s my current breakdown:
39% Oil & oil drillers
30% Silver & silver miners
11% Uranium producers
6% Gold & gold miners
14% Cash
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