JVB-BSullivan-Econ-Comment-100509
2 Pages
English
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JVB-BSullivan-Econ-Comment-100509

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2 Pages
English

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Broker Dealer / Institutional / Advisor Use Only October 5, 2009 ABOUT You can’t spin this one BILL SULLIVAN The financial markets reacted calmly to William V. Sullivan, Jr. the average monthly decline in household serves as Chief Economist the news that non-farm payrolls fell more employment registered 690,000 workers. at JVB Financial Group, than expected during the month of Conceivably, even more disappointing working closely with the September. Indeed, during last Friday’s was the surprising weakness in the hours firm’s trading desk, trading session, the prices of long-term worked series. The private workweek fell providing analysis and commentary on the U.S. Treasury debt actually declined while the one-tenth of an hour to 33.0 hours, the all-economy and the financial broad equity averages more or less held their time low for this measure that was markets. Among his duties own. Based upon that performance, it is established during the second quarter. Both are authoring a weekly quite apparent that investors effectively the manufacturing workweek and overtime report on credit market discounted in advance the decline in jobs trends and maintaining a hours in the factory sector fell as well, regular schedule of that was reported for the previous month. pointing toward broad-based weakness for conference calls that focus While that judgment per se may prove the economy during September. At the same on interest rate accurate, we seriously doubt ...

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The financial markets reacted calmly to
the news that non-farm payrolls fell more
than
expected
during
the
month
of
September. Indeed, during last Friday’s
trading session, the prices of long-term
Treasury debt actually declined while the
broad equity averages more or less held their
own. Based upon that performance, it is
quite apparent that investors effectively
discounted in advance the decline in jobs
that was reported for the previous month.
While that judgment per se may prove
accurate, we seriously doubt that security
valuations
fully
reflect
the
degree
of
weakness that was evident in the labor force
as the third quarter came to a close. This
consideration is underscored when analytical
focus is directed toward other employment
statistics beyond the payroll data that are part
of the monthly report.
Even though the 263,000 decline in
non-farm payrolls was almost 100,000 above
consensus expectations, investors were still
comfortable with the outright contraction as
it fell well short of the monthly declines that
transpired earlier in the year. From that
perspective, the sense that the pace of job
losses was moderating was still preserved.
However,
the
alternate
measure
of
employment that is extracted from the
household
survey
reflected
a
different
picture. Specifically, civilian employment
tumbled by a historically large 785,000
individuals during September, suggesting that
overall labor market conditions remain as
severe as ever. Reinforcing the magnitude of
the September drop, in the half year period
following the Lehman Brothers bankruptcy,
the average monthly decline in household
employment registered 690,000 workers.
Conceivably, even more disappointing
was the surprising weakness in the hours
worked series.
The private workweek fell
one-tenth of an hour to 33.0 hours, the all-
time
low
for
this
measure
that
was
established during the second quarter. Both
the manufacturing workweek and overtime
hours in the factory sector fell as well,
pointing toward broad-based weakness for
the economy during September. At the same
time, average hourly earnings rose by just
one cent and, when coupled with the
shrinking workweek, it is very apparent most
American families once again experienced a
softening pattern in their wage and salary
growth right before the critical holiday
period.
Needless to say, the drop in non-farm
payrolls fails to communicate the devastating
conditions in the current labor market
regarding the ability to establish a career
position, ultimately a very important factor in
terms of buoying consumer sentiment.
Incredibly, full-time jobs dropped by another
814,000 individuals last month, pushing the
year-over-year decline in this series to 8.2
million workers. The unemployment rate for
full-time employees currently posts 10.7% or
nearly one-full percentage point above the
nationwide average. College graduates now
have a jobless rate of 4.9% or nearly double
the year-ago reading, a clear cut indication
that those individuals with the highest
academic credentials are also finding minimal
opportunities in the labor market at this
point in the economic cycle.
The same
(Continued on page 2)
You can’t spin this one
October 5, 2009
A
B
O
U
T
B
I
L
L
S
U
L
L
I
V
A
N
William V. Sullivan, Jr.
serves as Chief Economist
at JVB Financial Group,
working closely with the
firm’s trading desk,
providing analysis and
commentary on the U.S.
economy and the financial
markets. Among his duties
are authoring a weekly
report on credit market
trends and maintaining a
regular schedule of
conference calls that focus
on interest rate
developments. He appears
frequently on Bloomberg TV
and is often quoted in
Barron’s.
Mr. Sullivan is the familiar
voice that JVB features on
our weekly conference call,
where he discusses the
economy and the events
that affect the marketplace.
He was previously
associated with Morgan
Stanley in New York City for
more than twenty years,
where he was an Executive
Director and a Senior
Economist in the firm’s
Retail Fixed Income
Division. Bill published a
widely quoted weekly letter
on the financial markets and
was a frequent guest
commentator on several
business networks,
including Bloomberg TV,
CNBC, and Fox News.
Mr. Sullivan received his
Bachelor of Arts Degree in
Economics from Fairfield
University.
Broker Dealer / Institutional / Advisor Use Only
situation applies to younger individuals seeking
employment as the teenage jobless rate has now
risen to 25.9%, up six full percentage points
from September, 2008.
The general belief within the Wall Street
community is that employment conditions are a
lagging indicator and that a recovery process is
now underway, despite the input on September
labor market activity. For sure, several business
cycles in the past may have performed in such a
fashion.
But the current contraction has no
precedent in the post- World War II period and,
against that backdrop, the prevailing weakness
in employment conditions should not be
ignored.
Augmenting the huge drop in full-
time jobs that has characterized the present
downturn, the nation unequivocally faces an
environment of chronic unemployment that is
likely to dampen household spirits for the
indefinite future. The average duration of
unemployment, which now totals 15.1 million
individuals, is 26.2 weeks, nearly eight weeks
above last year’s level.
The median duration
also continues its upward climb, registering 17.3
weeks as of last month. The lack of meaningful
employment opportunities prompted more than
800,000 people to withdraw from the labor
force in September. Obviously, lacking that
withdrawal, the nationwide unemployment rate
would have risen by more than one-tenth of a
percent during September. The fact that such a
huge reservoir of individuals are on the sidelines
now sets the stage for the overall jobless rate to
hit 10.0% by year-end and perhaps as high as
10.5% during the first half of 2010.
If the trajectory of jobs does weigh
heavily in favor of more losses, as appears to be
the case, the employment situation will prove to
be
a
leading
indicator
regarding
the
(Continued from page 1)
performance of the economy over the next few
quarters.
Not
only
will
individuals
be
confronting potential layoffs, but those who
remain on payrolls are likely to experience an
erosion in real take home pay.
In this
environment, discretionary spending by families
will be held in check, attention will be directed
toward debt reduction and the building of
liquidity reserves. Eventually, the message will
surface that the prospects for a self-sustaining
recovery process over the next year or so
remain very limited. Top line revenue growth
for many companies will fall well below the
optimistic expectations that are seemingly
reflected in today’s
financial
marketplace.
Moreover, in a setting of chronic joblessness
and limited earnings potential, the probabilities
seem to favor a consumer loan loss experience
that will exceed most forecasts as the fourth
quarter gets underway.
The maintenance of a moribund labor
market will have an important impact on policy-
making in the nation’s capitol.
A rising
unemployment rate should encourage the
Federal Reserve to sustain its accommodative
stance well into the future, pointing towards a
Fed funds target that remains at 25 basis points
through the opening quarters of 2010.
In
addition,
unless
a
turnaround
in
the
employment situation occurs more quickly than
expected, Congress may pursue another round
of fiscal stimulus. The need for more pump-
priming is made even more urgent by the
Congressional elections that will be held next
November.
William V. Sullivan, Jr.
Chief Economist
JVB Financial Group
October 5, 2009
Page 2 of 2
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JVB Financial Group, LLC, member FINRA, SIPC
2700 N. Military Trail, Suite 200 / Boca Raton, FL 33431
(561) 416-5876
www.jvbfinancial.com
For Broker Dealer, Institutional, and Advisor Use Only
Not to be distributed to individual investors
This document has been furnished to you solely for your information and may not be reproduced in any manner or provided to any other person. The
information contained herein is based on sources that we believe to be reliable, but we do not represent that it is accurate or complete. Nothing contained
herein should be considered as an offer to sell or a solicitation of an offer to buy any financial instruments discussed herein. All references to prices and
yields are subject to change without notice. Any opinions expressed herein are solely those of the author. As such, they may differ in material respects from
those of, or expressed or published by or on behalf of JVB Financial Group, LLC or its officers, directors, employees or affiliates.
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