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Posts Tagged ‘Employment’

Preparing for Retail

May 14th, 2010 Michael McDonough Comments off

On the surface, a recovery in retail sales is not only a harbinger for stronger economic growth, but could prove to be the missing link for job creation (see chart).  Climbing out of the deepest recession since the Great Depression, consumption growth has been surprisingly tepid, at least partially due to companies’ lack of confidence in the current recovery.  This is best demonstrated by surging temporary employment—first in first out employees—while overall hiring is lagging.  While forecasted gains in April’s retail sales, released 8:30 a.m., (+0.2% m/m, +0.4% ex-autos) could help bolster confidence, concerns linger that these improvements may be artificial, fueled by temporary government stimulus, and not be broad based enough to support a genuine recovery.  Both sides of this argument likely have some merit, but I anticipate marginal gains in consumption will continue over the months ahead as consumer confidence strengthens, and as consumer credit levels revert back to their historical norms, after significant deleveraging.

Source: Bloomberg

Thinking quantitatively about this my mind displays Excel’s infamous ‘circular reference’ warning.  People need jobs to consume, and companies need sales to hire.  If companies don’t hire, then people have no income to consume.  While you may be familiar with the adverse feedback loops that helped bring down the market, this is an advantageous feedback loop, where higher sales or faster hiring will support the other factor.  The bottom line is, it will be important to watch whether or not April’s gains are limited to a small subset of sectors, or are more broad-based.  Strong broad based growth will have a much stronger impact on business sentiment, consumption growth’s sustainability, and the likelihood of job creation.

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Potentially Good News For Jobless Bankers & Lawyers

March 9th, 2010 Michael McDonough Comments off

After a bit of a lull in 2009, M&A activity–a gauge toward GDP growth–has begun to gain some momentum this year.  Unsurprisingly, this uptick in M&A activity coincides with gains in business and professional services employment; a series that includes lawyers and bankers.

M&A Activity vs. Business and Professional Services Employment

Source: Bloomberg

The upward trend for M&A is generally expected to continue as companies  continue spending cash they have hoarded since the onset of the economic crisis. More M&A should continue to bode well for business and professional services employment,;try running a M&A deal without several teams of lawyers…  And of course without senior bankers,  and their hoards  of junior banker minions working almost non-stop to create a mountain of pitch books, there would be no deals.  So which companies will these bankers be targeting?  Below is a table from Gridstone Research that highlights the top 35 commercial and industrial companies with the largest cash, short-term investments and marketable securities positions:

Source: Gridstone Research

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ISM Disappoints, While Market Maintains its Gains

March 1st, 2010 Michael McDonough Comments off

The February’s manufacturing ISM slipped to 56.5, versus a 58.4 a month prior.  Disappointing the latest Bloomberg consensus forecast of 58.0.  Any level over 50 signifies expansion in the sector.  I continue to believe that as inventory restocking begins to slow the ISM manufacturing index will suffer as 2010 progresses.  That is without a new source of demand for manufactured goods, which does not appear to be on the short-term horizon.

Looking at the ISM’s components, prices paid fell to 67.0 from 70.0, the employment index climbed to 56.1 from 53.3, and the new orders index declined to 59.5 from 65.9. A jump in the employment index could bode well for this Friday’s employment report, which could be battered by weather related effects.

Manufacturing ISM & ISM Employment Index

Source: Bloomberg

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