Friday, April 1, 2011

Markets rise as the economy adds more jobs

Dow rose 83, advancers over decliners 3-1 & NAZ added 15. Bank stocks also did well, coming off a drab month which was good for other stocks.

S&P 500 FINANCIALS INDEX

Value	223.46
Change	2.75 (1.2%)

The Alerian MLP Index was up 1.70 to the 381s, only 2 short of a new record high while the REIT index was up 1+ to the 238s (4 short of reaching an interim high). Junk bond funds edged higher but Treasuries fell. Yields on 2-year notes earlier touched a 10-month high after a gov report showed employers added more jobs in Mar than forecasted & the unemployment rate fell. Oil rose to a 30-month high as economic data from the US & China spurred hope of growing demand in the world’s 2 biggest oil users, while fighting in Libya fanned concern that output cuts may spread. But gold declined on speculation that monetary policy will tighten, curbing demand for the metal as an alternative investment.

JPMorgan Chase Capital XVI (AMJ)

Treasury yields:

U.S. 3-month		0.09%
U.S. 2-year		0.85%
U.S. 10-year		3.48%

CLK11.NYM

...Crude Oil May 11

...106.76

....

0.04

(0.0%)

GCJ11.CMX

....Gold Apr 11

.........1,421.00

...

17.90

(1.4%)

U.S. Payrolls Increased 216,000 in March

Photo: Bloomberg

The unemployment rate fell to a 2 year low of 8.8% in Mar & companies added workers at the fastest 2 month pace since before the recession began. The Labor Dept reported that the economy added 216K jobs last month, offsetting layoffs by local govs. Factories, retailers, education, health care & an array of professional & financial services expanded payrolls. This was the 2nd straight month of brisk hiring. Private employers drove nearly all of the gains by adding 230K, on top of 240K in Feb. It was the first time private-sector hiring topped 200K in back-to-back months since 2006. The unemployment rate dipped from 8.9% in Feb to 8.8% in Mar & the rate has fallen a full percentage point over the last 4 months, the sharpest drop since 1983. Predictions are that employers will add jobs at roughly the same pace for the rest of this year which would generate about 2.5M new positions. But that will make up only a small portion of the 7.5M jobs wiped out during the downturn. One reason for the lower unemployment rate is that many people who stopped looking for a job during the recession still aren't looking for one, so they're not counted as unemployed. The proportion of people who either have a job or are looking for one is surprisingly low for this stage of the recovery. If many of them start looking for work again, they will be counted as unemployed. The unemployment rate could go up, even if the economy adds jobs! The number of unemployed dipped to 13.5M in Mar, still almost double since before the recession began in Dec 2007. Including part-time workers who would rather be working full time, plus people who have given up looking altogether, the percentage of "underemployed" dropped to 15.7% in Mar (still very troubling for the economy).

U.S. Payrolls Grew 216,000 in March; Unemployment at 8.8%

Photo: Yahoo

Builders started work on fewer homes, apartments & gov projects in Feb, pushing construction activity down to the lowest level in more than a decade. Construction spending tumbled for a 3rd straight month, dropping 1.4% according to the Commerce Dept. The weakness pushed total activity down to a seasonally adjusted annual rate of $760.6B, the smallest total since 1999 & was below the previous recession low set back in Aug. Activity at the Feb level is about half the $1.5T pace that would signal a healthy construction sector. It could take up to 4 years for construction to fully recover from the bursting of a housing bubble that pushed the country into a deep recession. The weakness in this important sector of the economy means recovery in the unemployment rate will drag on.

Construction Spending in U.S. Decreased More Than Estimated in February

The jobs report came in a little better than the optimistic expectations. In addition. Nazdaq is offering to buy the NYSE complex, an interesting turn of events. Corp buyouts, especially big ones, are bullish, sending signals that smart money is buying stocks. Other sectors are doing well, highlighted by MLPs breathing on establishing a new record high. Meanwhile, Dow has recovered a lot of lost ground & is back to where it was in the middle of 2008 (before the financial meltdown). Alcoa (AA), a Dow stock, will kick off earnings season on Apr 11. Reaction by the markets will tell us if the Q1 rally was justified.