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Rosey Job Numbers Hide Some Disturbing Issues

Stocks surged on Friday after the better-than-expected jobs report came in for the month of May. However, in light of the dismal report released the month before in May, investors may be a little skittish in making sound investment decisions based on these reports.

The number of jobs created during the month of June increased by 287,000. However, a closer examination of the entire jobs reports must be reviewed before being convinced that the important jobs numbers give signs that we are not completely out of the woods.

The unemployment rate ticked up to 4.9% reported for the month of May, when it was 4.7%.

Economists had forecast that nonfarm payrolls in May grew by 160,000, which would have been on pace with the numbers posted for April.

Here’s the issue. As the June numbers showed shockingly higher numbers over those reported just a month before, it must be taken into account the figures that show all is not as grand as those widely reported numbers on Friday.

The number of unemployed rose to 7.8 million, which was an increase of 347,000.
Then there is the issue of the number of people who are not looking for work because they believe no jobs are available for them. Those people make up a group referred to as “discouraged workers.”

The number of people who fall into this category did decline in June by 151,000 to 502,000 people compared to the same period last year.

The decline in the number of people in this group is a positive, but the number of long-term unemployed must also be factored; and that’s when the rosy 287,000 figure becomes less rosy.

Improvement in the outlook for discouraged workers must be acknowledged as a factor that impacts improvement in the overall economy.

At two million, the number of long-term unemployed, which are those who have been jobless for 27 weeks or more, changed little in June and accounted for 25.8% of the unemployed.

Then there is the labor participation rate, which was 62.7% for the month of June, which was just a tad bit higher than the 38-year low of 62.4% reported in September of last year.

As noted above, the May Jobs report was too meager to ignore. A mere 38,000 jobs were created, leading the Fed Reserve Chair Janet Yellen to immediately voice her concerns about job growth and the overall health of the economy.

Another reason investors should view these jobs numbers with caution is how off they are from previous reports.

In The Wall Street Journal last week, this was stated. “Consensus [estimates haven’t] been this off for two straight months in nearly 10 years.”

The Journal noted that this is the biggest gap since 2009. Furthermore, The Journal described the two-month miss as exceedingly rare.

“Combined with last month’s sizable miss, the recent job numbers have now accomplished something we haven’t seen in nearly 10 years,” Instinet’s Frank Cappelleri told The Journal. “The last time we saw the actual number beat by more than 100,000 after missing by greater than 100,000 the month before was in late October 2006.”

While the numbers show that June added a surprisingly strong number of jobs, these other stats throw water on the notion that the economy is moving along full speed ahead. Some observers say the strong jobs report in June helps alleviate fears that the economy was weakening.

Look no further than the surge in the markets after the release of the June report on Friday. Even the downtrodden 10-year Treasury yield reacted strongly, moving above 1.4%.

Be cautious in using the jobs report as your main gauge in deciding to invest. Look for a trend that shows increasing monthly numbers, or at least steady numbers.

Follow the Federal Reserve’s actions over interest rates. Note that increasing the rates may impact consumer spending, especially on big ticket purchases.

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