November Employment Situation Report
Friday’s November Employment Situation report was the last Employment Report we’ll receive before the Fed’s next FOMC meeting. For the most part it was as expected. Headline total nonfarm jobs came in at 179,000 for the month, a smidgen below the consensus expectation of 180,000, and up from 142,000 in October. That headline figure kept average job growth year-to-date at 180,000 per month. Paired with year over year wage gains of 2.5% in November and a relatively stable November labor force participation rate at 62.7, odds are the Fed will over look the bad math drop in the November Unemployment Rate as it eyes that increasingly likely Fed rate hike in the coming weeks.
The big surprise in the report was the 4.6 percent unemployment rate, a relatively sharp drop from the 4.9 to 5.0 percent range in September in October. Peering into the data shows something different from the “as expected” results associated with the headline November jobs figure. Let’s go the data:
- The November civilian labor force was 159.5 million, down from 159.7 million in October;
- The number of Employed rose to 152.085 million, up from 151.925 million in October;
- The number of Unemployed fell to 7.4 million from 7.79 million in October;
- The number of people not in the labor force rose to 95.05 million, up from 94.6 million in October 2016, and 94.4 million in November 2015.
Putting this together, we see the primary reason behind the fall off in the November Employment Rate was really number of people falling out of the labor force (0.45 million), not the month over month gain in the number of employed additions (0.16 million).
Not quite the picture one would think given the positive tone of the week’s economic data. Again, when we tally up the week’s data and looks at the various puts and takes, it looks increasingly like a Fed rate hike is in the offing near-term.
Italy’s Complex Choice
Sunday, December 4th was the referendum vote in Italy. Tematica’s Chief Macro Strategist Lenore Hawkins and Chief Investment Officer Chris Versace shared their thoughts on this issue here, but like most other voting events, there tends to be a final outcome, which most likely won’t be known until late Monday at the soonest. With that in mind, here are the likely scenarios:
- If contrary to the polls the “yes” vote wins, Italian bonds and banks will rally and the MIB (Italian stock index) will have a huge relief rally, particularly given its over-exposure to banks, and the euro will likely strengthen relative to other currencies.
- If the polls are right and we see a “no” vote by a large margin, Italian yield spreads over German bunds will widen a lot. Italian bank stocks will accelerate downward and Banca Monte dei Paschi di Siena (MPS) will likely need external aid, which will put the European Central Bank in the hot seat, and all eyes will be on German Chancellor Angela Merkel who is also watching Germany’s Deutsche Bank spiralling downward.
This Week’s Economic Data Front
Following the data-heavy week we’ve just had, the coming week is far tamer on the flow of economic data points coming at us. With more than a week to go until the Fed’s next FOMC Meeting (Dec. 13-14), and data received over the past week likely cementing the prospects for the Fed to boost rates exiting that meeting, we’ll continue to put the November ISM Services, 3Q 2016 Productivity, and Unit Labor Cost data through its paces.
Much like the November Employment Report, unless there is a wide miss relative to expectations that causes a major re-think on the economy, the odds are rather high the Fed will boost interest rates come Dec 14.
Earnings On Tap this Week
In the coming week, four S&P 500 companies are slated to report results for 3Q 2016 and two scheduled to report their results for 4Q 2016. Given our thematic perspective that shuns the sector based herd view, we’ll be focusing on the thematic data points to be had coming out of earnings results from:
- Autozone (AZO), Costco Wholesale (COST), and Ollie’s Bargain Outlet Holdings (OLLI) for Cash-strapped Consumers;
- Adobe Systems (ADBE), Broadcom Ltd. (AVGO) and Liberty Broadband (LBRDA) for lies ahead in our Connected Society;
- Match up demand drivers for Hostess Brands (TWNK) vs. Hain Celestial (HAIN) and United Natural Foods as Fattening of the Population squares off against Food with Integrity.
- Get a sense where Rise & Fall of the Middle Class consumers are spending that higher October disposable income when we hear from Toll Brothers (TOLL), Lululemon Athletica (LULU), and Virgin America (VA).