FOOL TAKE---ONE FOOL'S OPINION*(FOOL EQUITY RESEARCH)
PEARLAND, Tx. Apr. 8/FOOLWIRE/ --- The Bureau of Labor Statistics released its March Employment Situation report Friday morning and, for the second month in a row, the increase in nonfarm employment was higher than anyone had expected. In spite of the GM strike, total nonfarm employment increased by 140,000 between February and March, led by a surge of 212,000 in the service-producing sector. The goods-producing sector lost 72,000 jobs month-over-month with the majority of the job losses occurring in manufacturing.
Nonfarm employment is one of the four indicators that the Commerce Department uses to construct its monthly Composite Index of Coincident Economic Indicators. So, if you are a Today's Pitch player and you are reading this at any time before Saturday morning, you have a leg up on the answer to Pitch #52 because you already know for sure that at least one of the four coincident indicators rose this month.
During March, the labor force grew by 637,000 to 133.7 million, and total unemployment grew by 149,000 to 7.5 million, causing the unemployment rate to edge up from 5.5 percent to 5.6 percent.
The February Employment Situation report showed a 705,000 increase in the nonfarm employment total. This month's report revised that figure downward to 624,000. One explanation offered for the unusual February jump was that it was a snap back from the unusual slump of -188,000 in January, due to bad weather and the government shutdown. If we average the changes in employment for January and February, we obtain a monthly average gain of 218,000. That's not all that unusual as monthly changes in employment go. During the last seven months of 1995 there were three monthly employment gains that were as large or larger than this amount. So, it looks like all that fuss in the bond market and stock market right after last month's report was much ado about nothing.
When today's report came out, the nervous nellies trading the bond markets panicked again and drove the rate on the 30-year T-bond from 6.66 percent to 6.83 percent. This made even less sense than last month's rout, because today's reported employment change was not even all that unusual. When we compare the March gain of 140,000 with the January-February average and with monthly changes going back to last June we find that 6 out of the past 9 months have had greater monthly gains than the change for March.
Thank goodness the stock market wasn't open today. Even though I am fully confident in the long-term prospects for all my stocks, it still hacks me off when they all lose a couple dollars per share due to the actions of a bunch of panic-stricken bozos. Maybe the three-day weekend will give stock market participants a chance to pause and reflect on the facts of the situation, and they will decide to behave rationally when Monday morning rolls around. Hope springs eternal.
Remember a couple days ago I said that the big jump in the February Leading Economic Indicators index (LEI) was a fluke, caused mainly by an abnormal drop in the average workweek in January? I pointed out that the large contribution by the workweek indicator reflected nothing more than a return to normalcy in February. Well, today's Employment Situation report contained the average workweek figure for March. And, guess what? The March number was just about the same as the number for February -- 41.4 hours vs 41.6 hours. So, the next monthly determination of the LEI value will contain a small negative contribution from the workweek indicator.
In other news today, the Columbia University Center for International Business Cycle Research (CIBCR) reported that, from February to March, its Leading Inflation Index rose from 104.0 to 104.4. This was the second consecutive monthly rise following thirteen consecutive months of decline. I don't know what indicators make up this index; but, the implication is that there are some stirrings of economic activity currently in evidence that portend a general rise in prices early next fall. It has been said that Fed Chairman Greenspan puts great store in this index. So I guess, if it keeps rising, we might not be seeing any further interest rate cuts anytime soon.
Pat Lafferty (MF Merlin), a Fool
* A Fool Take represents the opinion of one Fool and in no way should be taken as the opinion of either the Motley Fool, Inc., the company in question or representative of anyone or anything else other than that specific Fool's thoughts.
Byline: Lafferty (MF Merlin)