Normally when we enter a new month, investors both look back as well as forward to gauge what has occurred over the prior 30 days. Looking back, they take stock of the moves in the major stock market indices and any key announcements or events.
Taking such a view for October, we see all of the major market indices — the Dow, the S&P 500 and the Nasdaq Composite Index — were down for the month. Those drops reflected rising concern over corporate earnings as a growing number of companies fell short of revenue expectations and cut their outlooks as October ticked away.
Also exiting October, the name Sandy earned a place in the American lexicon, not as a Bruce Springsteen song but as one of the worst storms ever to batter the East Coast. Sandy managed to close the federal government; forced the evacuation of Lower Manhattan; shut down the New York Stock Exchange and millions of other businesses; cut off power to millions of homes and businesses from Virginia to Vermont; and caused untold billions of dollars in damages.
As we march into November and Tuesday’s elections, greater importance than ever will be placed on the economic indicators reported between now and then.
To say job creation is a key issue in the 2012 presidential election is a vast understatement. We also know that in normal times there are issues with government statistics. Also, relying solely on single data-point streams — such as viewing domestic job creation only through the lens of the monthly employment report issued by the Bureau of Labor Statistics — rarely gives a full or truly representative picture of what is actually happening.
That’s why I recommend looking at a number of data points when it comes to the economy, industries and so on. Ahead of Friday’s October employment report, we’ve already gotten several views the state of the job market for the month. Perhaps the best known non-government gauge on employment is Automatic Data Processing’s monthly jobs report. In October, ADP found 158,000 private sector jobs were added, compared to 114,000 in September.
Likely lost in the Hurricane Sandy-related headlines was the October reading of Intuit’s Small Revenue and Employment Index. For those who never heard of this report, it measures the change in employment at firms with fewer than 20 employees and is derived using employment data for approximately 170,000 small business employers, a subset of the more than 1 million businesses using Intuit Payroll.
So what did Intuit find?
Small business job-creation fell once again in October, marking the fifth consecutive month of month-over-month declines in Intuit’s small business employment index. Also falling in October, according to Intuit, was the number of hours worked. While that metric has been steadily falling over the last year, the pace of that decline has picked up in recent months. When the lifeblood of job creation — small businesses — is on the wane, that does not bode well for the overall job market.
Making matters worse, nearly 60 percent of all S&P 500 companies that have reported their third-quarter earnings missed revenue expectations, which likely means that job cuts will soon be back on the table. Already, we’ve heard of job cuts from Colgate-Palmolive, Dupont, Oshkosh Corp., Dow Chemical and Advanced Micro Devices, as well as facility closures from Navistar International, Diamond Foods, Build-A-Bear, Sears, iRobot, Georgia Pacific and others. With that mind it comes as little surprise that the October job cuts number from Challenger Grey showed planned layoffs by U.S.-based employers surged 41 percent to the highest level in five months.
Taken together, stirred in a cocktail shaker and poured out to be analyzed, the above data point to a mixed October employment number from the Bureau of Labor Statistics Friday. Consensus Wall Street economist expectations call for the creation of some 125,000 non-farm payroll jobs, with a tick up in the unemployment rate to 7.9 percent.
No matter what the actual and underlying data, expect a manipulated interpretation to be the headline.
• Chris Versace is the editor of the PowerTrend Brief and PowerTrend Profits newsletters. Visit them at ChrisVersace.com or follow him on twitter at @_ChrisVersace. At the time of publication, Mr. Versace had no positions in any companies mentioned in this column; however, positions can change.
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Chris Versace, the “Thematic Investor,” is the director of research at Think 20/20, an independent equity research and corporate access firm located in the Washington, D.C. area. Before Think 20/20, Mr. Versace was the portfolio manager of Agile Capital Management (ACM), a thematically driven alternative investment fund. The groundwork for ACM was laid during Mr. Versace’s tenure as senior vice president of equity ...
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