Blog : Get Back to Work!

by Ed Zwirn on July 3rd, 2014

Those who believe that the U.S. economy rebounded in Q2 received confirmation of that belief this morning with the release of a Bureau of Labor Statistics report showing robust June job creation.

June's 288,000 increase in nonfarm payroll employment came in much higher than the consensus 230,000 and should serve as unambiguously good news to a market filled with stocks at or near record levels. The U.S. Federal Reserve Bank is apparently preset to continue tapering of its quantitative easing program in 2014 and constrained to retain near-zero short-term rate targets for even longer than that. And, given the dismal showing seen for the U.S. economy in Q1, nobody thinks things are overheating.

This puts the market for everything from penny stocks to blue chip shares in a sweet spot heading into the Fourth of July and given its timing ahead of the three-day weekend should prompt many traders to leave town secure in their outlooks.

The latest upward revision to previous numbers reinforces the perception of an economy on the mend. The change in total nonfarm payroll employment for April was revised from 282,000 to 304,000 and the May number was tweaked from 217,000 to 224,000. This gives us 816,000 new jobs reported in the aggregate for Q2, a 43% increase over Q1 and a 35% increase over Q2 2013.

In addition to the jobs gains, the drop in the unemployment rate, from 6.3% to 6.1%, its lowest level since September 2008, is also unambiguously good news. While the most recent unemployment rate drop, in April, was rightly derided as being propelled by the dropoff of discouraged workers from the labor force, the same cannot be said of this latest improvement. The labor force participation rate held absolutely steady at 62.8%, the level to which it has held for three months now.

The raw number of Americans counted officially as unemployed fell by 325,000 in June, to a still-high 9.5 million. There are now 2.3 million fewer unemployed than there were a year ago.

The latest jobs numbers also show some progress toward overcoming some of the longer-term problems which have plagued the labor market since the recession.

The number of long-term unemployed (those jobless for 27 weeks or more) fell by 293,000 in June to 3.1 million. Over the past 12 months, this number has decreased by 1.2 million.

In June, there were 2 million people defined as "marginally attached" to the labor force, down by 554,000 from a year earlier. Among the marginally attached, discouraged workers (who hadn't looked for jobs over the past month because they believed there were no jobs available to them) stood at 676,000 as of June, down 351,000 from one year before that.

June's jobs gains were also widespread, led by gains in professional and business services, retail trade, food services and drinking places, and health care. During last month, 8,000 more people found jobs as management and technical consultants, 21,000 health care jobs opened up and even transportation and warehousing employment rose by 17,000. Other major employment sectors, including mining and logging, construction, information and government, saw little change.

The takeaway for investors: Although the recovery has been a slow one and vulnerabilities remain, this morning's jobs numbers provide the evidence people have been waiting for that the economy may finally be gaining traction. The sharp fall in the number of discouraged workers may be a sign that this traction may be becoming apparent to the rank and file, hopefully prompting more of them to open up their wallets in the pursuit of happiness.

As I sit down to write this, the Dow Jones Industrial Average is over the 17K threshold for the first time ever. That being the case, and especially heading into summer, investors could be justified in fearing a pullback.

The evidence seems to suggest, however, that investors have read the jobs report correctly. Assuming this good news carries forward, the outlook for H2 should be a bullish one, particularly as the world's central banks outdo each other to lower rates and prop up growth. Assuming there are no external shocks to the system (admittedly a large assumption) this will only encourage investors to pile on risk, which is always a great thing for the risky assets (like penny stocks) receiving the investor largesse.

On a lighter note: Happy Fourth of July to all our readers and Peter Leeds Penny Stock Newsletter subscribers. Hopefully, this three-day weekend, and the summer beyond, will be a happy and prosperous one. Nothing succeeds like success in this biz, as they say.