I took the last two trading days off from writing, but not from working, to concentrate my after hours’ efforts on helping my wife prepare for the Passover holiday. Two vats of chicken soup, fifty matzoh balls and three briskets later we began the holiday at sunset on Friday.
However, on Friday morning the markets got a dose of economic data from the Bureau of Labor Statistics. In March, the American economy generated 126,000 jobs, far short of the 245,000 jobs expected by economists. Furthermore, the prior two month’s jobs growth was cut back by an aggregate 69,000.
So what happened in March and does this report portend a slowing of the economy? When you dig into the details, you get a somewhat clear picture of what occurred.
Mining and extractive services jobs, i.e. oil and gas, declined by 11,000 in March. The industry has lost 30,000 jobs thus far in 2015, after adding 41,000 jobs in 2014. This should not have come as a surprise to economists, but then again they work off of models, not the real world. Frankly, losing only 11,000 jobs in this sector was far fewer than what I would have expected given the condition of the crude oil market.
Employment in food services and drinking places changed a measly 9,000 in March, versus a 66,000 increase in the February. Job growth in the first quarter of 2015 averaged 33,000 per month, the same as the average monthly gain in 2014. Employment in other major industries, including construction, manufacturing, wholesale trade, transportation and warehousing, information, financial activities, and government, showed little change over the month. Given the weather this winter, which was no better than that of last winter, why should we have expected anything different year-over-year?
Let me also throw two other possible sources of slowing job growth. First, strength in the US Dollar is hurting our exports, which is not helping create jobs at home. Instead, we are creating jobs abroad as the strong dollar chases cheap foreign made goods. Second, increases in minimum wages are beginning to have a second order effect on jobs. Nineteen states increased minimum wages on January 1, 2015, after two states did so on December 31, 2014. Two other states and the District of Columbia are scheduled to increase minimum wage rates later this year. WalMart (WMT), McDonald’s (MCD), Target (TGT), TJ Max (RTJX) and Gap Stores (GPS) all recently announced that they would voluntarily raise their minimum pay scale. In doing so, these companies have three courses of action, 1) raise prices to consumers; 2) cut headcount, or; 3) do nothing. The first is not likely, the last would hurt earnings, hence the second – cut headcount, is the likely response from management. This is something that employers warned would occur if minimum wages rose.
So, since the markets were closed on Friday, expect the stock market to open lower today on the disappointing labor report. Also, expect the fixed income markets to rally as the jobs report will convince many investors and traders that the Federal Reserve will delay even longer their first rate increase in several years.
That being said, My Gut Feeling is that the equity markets open on their lows in the first hour and then snap back. I have some cash to put to work and might do so later this morning.
Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView AssetManagement, LLC was long MCD — although positions can change at any time.
Scott Rothbort is the President & Founder of LakeView Asset Management, LLC, a registered investment advisor specializing in high net worth private wealth management. For more information on investing with LakeView Asset Management, LLC call us at 888-9LAKEVIEW or request more information by clicking on the contact button on the top right hand corner of the website.
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