Jobs Market
The jobs market consists of employees and employers searching for and trying to attain a match for employment within a firm. The jobs market is not static, but is constantly changing as the needs of companies change over time. New technology means a different skill level in the workforce, demanding people within the jobs market upgrade their skills to remain employable. Conversely, if there is a shortage of workers in a specific area, then wages will rise for that sector. As with any market, the price (wages) is set by supply and demand.
Is Bernanke Underestimating the Long-Term Impact of Easy Money?
By George Leong for Investment Contrarians | May 24, 2013
Don’t worry, folks, Federal Reserve Chairman Ben Bernanke is not going to take your money away anytime soon; the stock market is safe.
In his testimony to Congress on Wednesday, Bernanke made it clear that the central bank’s current aggressive $85.0 billion in monthly bond purchases will continue to move along.
The stock market surged upward on the news, which is exactly what I would have expected, given that the amazing run-up in stocks this year has largely been due to the flow of easy money into the U.S. economic system. So there’s no need to worry about the stock market and your assets—for now.
Bernanke emphasized the fragility of the jobs market and reinforced his view that it’s still too early to put an end to the stimulus. Allowing rates to creep higher would “carry a substantial risk of slowing or ending the economic recovery,” said Bernanke to Congress. (Source: Chairman Bernanke, B.S., “The Economic Outlook: Before the Joint Economic Committee, U.S. Congress, Washington, D.C.,” Board of Governors of the Federal Reserve System web site, May 22, 2013.)
The end result will see the stock market continue to rally higher to new record highs.
The chart below shows the upward move in the S&P 500 since 1980, shown by the green line, as the effective federal funds rate declines over time. Note the massive gap between the S&P 500 and the effective federal funds rate, shown by the purple oval on the chart.
Chart courtesy of www.StockCharts.com
The reality is that not only is the easy monetary policy flowing in America, it is also flowing across the global economy … Read More
Consumers Spending Less; Just Ask Wal-Mart
By George Leong for Investment Contrarians | May 21, 2013
All of the talk about the negative impact of the sequestration on consumer spending appears to have some validity.
While the rich consumers are continuing to spend on luxury items, those who are making less money and are influenced by the fragile jobs market and flat income levels continue to worry, which could likely impact consumer spending going forward. The effects of this, along with the widening gaps between the rich and the poor and the middle class are affecting consumer spending by Americans. In fact, we are seeing a widening income gap in many countries around the world, so it’s not just an American phenomenon—its impact on consumer spending is global.
Wal-Mart Stores, Inc. (NYSE/WMT) is a good barometer on the state of consumer spending around the world, especially with the lower- to middle-class consumers.
The company reported its results last Thursday, and it seems like Wal-Mart is facing some hesitation in consumer spending.
In the fiscal first quarter, the company’s net sales grew a mere one percent year-over-year to $113.4 billion, which was below the Thomson Financial consensus estimate of $116.4 billion. The sales reading was also shy of the low range of the estimate of $114.6 billion.
The low-cost retailer blamed the decline in consumer spending on a delay in tax refunds, adverse weather, and the rise in payroll taxes. The key comparable U.S. store sales fell 1.4% for the 13 weeks ended April 26, 2013, which represents the first contraction in this key metric in many quarters.
My concern is that Wal-Mart is facing sales pressure at a time when money is cheap. What will happen … Read More
Don’t Be Fooled by the Retail Numbers—Just Be Selective
By George Leong for Investment Contrarians | Apr 16, 2013
When interest rates are as low as they are and consumers begin to hold back on their spending, you have to wonder about the prospects for the retail sector going forward.
With the higher taxes on those earning over $400,000 and other tax increases as a result of the sequestration, we may be seeing some evidence of reduced spending.
The U.S. Department of Commerce said retail sales in March contracted by 0.4% on both a headline and an ex-auto basis, which was below the Briefing.com estimates of flat sales and 0.3%, respectively. This was the second decline in retail sales in the last three months.
While it may be premature to assume a new downtrend for retail sales, I wonder if the decline in take-home pay for some Americans has resulted in less consumer spending.
Or, it may be the softness of the jobs market that is making consumers nervous. With only 88,000 new jobs created in March, the jobs numbers must have had some impact on consumers and the retail sector.
Even consumer sentiment appears to be fading a bit as evidenced by the Thomson Reuters/University of Michigan Consumer Sentiment Index reading of 72.3 in April. This reading represented the worst reading since July 2012, and it’s well below the 76.0 estimate by Briefing.com and the 78.6 reading in February.
According to my estimate, the retail sector continues to be full of opportunities, but you also need to be careful on what retail stocks you buy.
You would have been sideswiped if you bought J. C. Penney Company, Inc. (NYSE/JCP), as the company posted horrible results and subsequently fired … Read More
Why Earnings Outlooks Are More Important Than This Quarter’s Results
By Sasha Cekerevac for Investment Contrarians | Apr 12, 2013
With the financial reporting season underway, one of the most important considerations is not the most recent quarter’s earnings results, but the earnings outlook companies are giving for the remainder of the year.
One market sector that I like to watch is the retail area that sells to the average American, as this helps give a clear picture of the underlying fundamentals of the U.S. economy.
Family Dollar Stores, Inc. (NYSE/FDO) just released its earnings outlook for the remainder of the year, and it was far below what analysts had expected. In January of this year, Family Dollar offered an expected earnings outlook for fiscal 2013 of approximately $4.20 per share; this has now been reduced to $3.93 a share. (Source: Burritt, C., “Family Dollar Cuts Profit Forecast as Shoppers Cut Back,” Bloomberg, April 10, 2013.)
During the second quarter, Family Dollar reported that same-store sales increased by 2.9%, for stores open longer than 13 months, also coming in below estimates. This company is interesting, as the lower-income market sector is showing continued weakness.
The significant decline for the earnings outlook of each company tells me that all of this quantitative stimulus is doing little to help the average American, as this market sector is not showing any signs of improving.
The lack of job creation and the increase in the number of people pulling out of the jobs market are now having a direct impact on the market sector that caters to millions of people. With continued economic weakness, there is little hope that the earnings outlook will improve anytime soon.
It is actually quite shocking, considering the trillions … Read More
Why We Can’t Create Jobs After Three Rounds of Quantitative Easing
By George Leong for Investment Contrarians | Apr 9, 2013
The stock market finally did the right thing last Friday after the disastrous non-farm jobs market reading. Now there are some who suggest the extremely poor jobs market reading forces the Federal Reserve to maintain its controversial bond-buying program and maintain record-low interest rates, driving the flow of easy money—but the jobs market numbers were horrendous. I sure wouldn’t be buying jobs-related stocks at this time.
A mere 88,000 new jobs were created in March, according to the United States Department of Labor. (Source: “Economic News Release: Employment Situation Summary,” Bureau of Labor Statistics web site, April 5, 2013.) Briefing.com had estimated the country would generate 185,000 new jobs in March, so we were short by nearly 100,000 jobs.
This is not something to push aside. In February, an upwardly revised 268,000 jobs were created, some 180,000 more than in March. You don’t have to be an economist to figure out something is wrong with the jobs market picture, but then you would realize this, as I have been bearish towards America’s jobs market despite the optimism that was surfacing.
The 88,000 new jobs were so bad that it was well below the monthly average of 169,000 over the past 12 months, based on data from the Bureau of Labor Statistics.
The unemployment rate edged lower to 7.6%—but you can ignore this, as more workers decided to stop looking for work, which was the reason for the decline.
The Department of Labor says there are 11.7 million unemployed, but readers of Investment Contrarians know that this number is not realistic, but erroneous. In reality, there are likely over 20 million … Read More
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