Blog : A May Day Look At the Labor Market

by Ed Zwirn on May 1st, 2014

It may go without saying that investors chasing hot stocks to buy need to keep one step ahead of the curve. Today's conventional wisdom may suffice for today, but the money is to be made tomorrow by people with luck and/or foresight.

Tomorrow's jobs report may not bring you luck, but is one of those troves from which you may be able to mine clues as to the state of things to come. Providing as it does a snapshot of the lives of millions of working and unemployed people throughout the United States, the report is of course useful as a headline indicator of the health of the U.S. economy.

And with much of the stock market at recent highs, there is a lot riding on these headlines. Following the mild shock administered by Wednesday's preliminary GDP estimate, which showed the economy growing by only 0.1% in Q1, investors are apparently betting big that Friday's non-farm payrolls report will show a job gain of around 210,000 for April, providing further evidence that the economy has turned around from the deep freeze that was the first quarter.

The stock market has already reacted positively to this anticipated news. The ADP Employment Change report, which came out on Wednesday and is widely used by traders to bet on the "official" jobs report, showed job creation accelerating, with 220,000 jobs being added to payrolls last month, up from March's upwardly revised 209,000.

The Dow Jones Industrial Average rose about 0.3% yesterday in the aftermath. The broader NASDAQ Composite also rose 0.3%, while penny stock investments outperformed, with the small-cap Russell 2000 up 0.5%.

The investors propelling these gains may have been counting their chickens before they hatched, pricing into the market the new-found wisdom that the economy is once again picking up following the lurch it received over the winter. And who can blame them? December, which recorded only 84,000 new jobs, and January, with 144,000 were both train wrecks from a job creation point of view, and it was not until February and March until we saw the number come anywhere near 200K. Any apparent derailment of this trend has the potential to upset an already jittery market.

But macro considerations aside, there are serious reasons to parse the employment report thoroughly when it comes out. For one thing, the sectors in which jobs are being created are important indicators not only of the health of those particular sectors, but also of the quality of the jobs themselves. The bulk of the jobs being added lately have come in the service-providing and retail sectors, jobs which while better than nothing, are often low paying.

But more important are the clues given by the jobs report into the life and work choices of millions of Americans. Following January's disastrous jobs report, I wrote in this investment blog about the growing number of people working part-time not out of necessity because it suits them. Part of a growing freelance trend (in which I participate), many people are finding themselves economically able to reduce work hours to take care of family obligations or just because they prefer it that way.

This may in part be due to the expansion of affordable medical insurance under Obamacare. Depending upon how you spin it, the shift to part-time work can be portrayed as either a disastrous unintended consequence of the new law or a benefit because it frees people from drudgery. Based upon my own experience, the availability of health coverage has taken the urgency out of my search for full-time work with benefits, to say the least.

But whatever is driving it, the shift toward a more flexible workforce, assuming it continues, would mark a stark reversal of the paradigm which has governed everything from advertising to social policy over the past several decades. The pitch of both politicians and entrepreneurs over this period has been based on the assumption that Americans will forever have to work increasing hours to sustain their lifestyles, a trend which became pronounced after the widespread entry of women into the workforce.

To be sure, the stressed American family working two jobs and shuttling their kids to soccer practices is not going to disappear any time soon. At the same time, there may well prove a growing marketing niche for people who want to spend more time at home, and have the time and money to pull it off without going hungry or missing a payment.

Advertisers are already paying attention. With technology making it easier to track consumer behavior, companies are increasingly finding the need to keep up by honing their offerings to niches such as these, especially if these niches are growing. Investors alert enough to discern trends like these and their applicability to specific companies can do well by themselves if they go deeper than the headlines tomorrow, when much of the world will be screaming about whether we met or missed the headline expectations.