Silver Linings and Dark Clouds in Employment Data

It was a bit of a roller-coaster trade in the stock market last Thursday, but when it was all said and done, the stock market resolved its affairs in much the same way it did in the first quarter. That is, it saw the downswing as a buying opportunity and ended the session on an upswing.

The S&P 500 jumped 0.7%, paced by gains in all ten sectors. The basic materials sector (+1.8%) had the strongest showing as the better-than-expected ISM Index drove a pro-growth trade; meanwhile, the energy (+1.6%) and financial (+0.9%) sectors exhibited relative strength that lent some weight to the gains.

As to be expected, volume was on the light side with 7.79 billion shares traded across US exchanges. That total was 10% below the 50-day moving average as vacation plans and the specter of the March employment report kept plenty of participants on the sidelines.

The sidelines are where most participants remained until yesterday, too, since the stock market was closed Friday in observance of the holiday. When they returned, they were faced with an employment report for March that was open for interpretation.

On the bright side, nonfarm payrolls increased by 162,000 positions (consensus 184,000) in March. The prior two months saw upward revisions. January was revised from -26,000 to +14,000 while February was revised from -36,000 to -14,000. Temporary help services increased 40,000 in March.

Temporary employment, which is seen as a leading indicator, has increased by 313,000 since September.

The average workweek for all employees on private nonfarm payrolls picked up to 34.0 hours (consensus 33.9) from an upwardly revised 33.9 hours in February. In turn, the manufacturing workweek increased 0.2 to 39.9 hours and factory overtime was up 0.1 hour over the month to 2.9 hours.

The uptick in the average workweek will also be held out as another marker that suggests hiring activity should pick up in coming months.

The unemployment rate held steady at 9.7% (consensus 9.7%). On the not-so-bright-side, average hourly earnings declined -0.1% (consensus +0.2%) in March after a 0.2% increase in February, which was revised up from an originally reported increase of 0.1%.

On a year-over-year basis, average hourly earnings have risen 1.8%, which means they are actually up only 0.5% on a real basis using core CPI, which was up 1.3% year-over-year in February, as the deflator. The limited income growth will continue to act as a restraint on consumer spending.

Another very bothersome number is the number of long-term unemployed. That number stretched to 6.5 mln in March from 6.1 mln in February. The translation is that 44.1% of all workers officially counted as unemployed have been out of work 27 weeks or longer. That compares to 24.6% a year ago.

The so-called "real" unemployment rate, which counts the total unemployed plus all marginally attached workers and the total employed part-time for economic reasons, edged up to 16.9% from 16.8%. Essentially, this means one out of every six workers over the age of 16 is still either unemployed or underemployed.

The futures market moved up after the data and is showed a gain of three points Thursday. We wouldn't put a lot of stock in the futures indication given the thin conditions.

In any event, the stock market has been inclined to look at the silver lining with most reports these days. This week we will see if that remains the case.

The March employment report had some silver linings, but it is still hard not to notice the dark clouds of meager earnings growth and the inability to find full-time work.