Weak Jobs Numbers & Manufactured Goods Keep QE Door Wide Open
There’s more to the recent jobs numbers and durable goods statistics than meets the eye. While recent economic data isn’t anything to celebrate, it does still open up a number of interesting opportunities for both short- and long-term investors.
The Bureau of Labor Statistics said last Friday that 169,000 non-farm payroll jobs were added in August. As a result, the unemployment rate dropped from 7.4% in July to 7.3% in August, the lowest rate since December 2008. Good news! But not really. (Source: “The Employment Situation – August 2013,” Bureau of Labor Statistics web site, September 6, 2013.)
At face value, August’s jobs numbers don’t tell the whole story. The vast majority of those jobs (71%) were created in retail, business services, hospitality, and health care; interestingly, only 19,000 jobs (11.1%), or 400 per state, were in manufacturing. In fact, the real reason the jobs numbers looked so encouraging is because more and more Americans have stopped looking for work—and no longer count as being unemployed.
July’s projected jobs numbers growth was revised downward from 162,000 to an anemic 104,000; June’s numbers were also revised lower. Add them up, and July’s revised jobs numbers means the U.S. has created 74,000 fewer jobs than previously believed.
The day before, the Census Bureau announced that new manufactured goods orders in July fell 2.4% month-over-month, the largest decline in half a year; in June, orders were up 1.6%. July’s slide came on the heels of weak demand for heavy machinery and commercial aircraft. (Source: “Full Report on Manufacturers’ Shipments, Inventories and Orders July 2013,” U.S. Census Bureau web site, September 5, 2013.)
Since the tapering of quantitative easing, the fuel propelling the stock market, is contingent upon a broad improvement in the economy, these numbers don’t portend a pullback. At the same time, the Federal Reserve can cherry-pick the statistics it wants to justify its actions—which means a slight easing of the $85.0-billion-per-month bond-buying program may not be justified. However, that doesn’t mean the Federal Reserve won’t do it—though I think the chances for any tapering in 2013 are remote.
While quantitative easing will continue to support a weak stock market, some companies in the heavy manufacturing sector will not able to hide behind bleak past, present, or future numbers. As a result, investors should keep a watchful eye on those stocks in their retirement portfolio that will be impacted by any slowdown in manufacturing.
In light of the recent jobs numbers, manufacturing data, and potential slip in manufacturing jobs numbers, those with an exposure to this sector might want to consider taking some profits off the table. If, worst-case scenario, the sector does correct, at least investors didn’t lose as much as they would if they held on blindly for the long term.
Those who think the manufacturing sector could be ripe for a pullback might also want to consider shorting those companies they think will be negatively impacted the most by weak manufacturing prospects and a rise in the decline of manufacturing jobs numbers.