August’s Non-farm payroll numbers were truly concerning. The table below gives a quick view of the overall picture.
| Released on 9/2/2011 8:30:00 AM For Aug, 2011 | ||||||||||||||||||||||||||||||||||||
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Source: Bloomberg
The unemployment rate managed to hold steady but only due to a stagnant labor force. Meanwhile, the economy as a whole produced no new jobs at all and the private sector produced only 17,000. This was certainly worse than the consensus expectation of an already feeble 60,000 new jobs economy-wide. Moreover, job growth in the previous month was revised down from 117,000 to 85,000. All told, job creation over the two month period July to August was a full 92,000 worse than expected.
Not encouraging. This will undoubtedly set a difficult tone for September trading.
Looking forward, one would hope that August’s numbers reflected a temporary effect, as corporate leaders held back from hiring whilst the federal debt ceiling debacle was in full swing. That being the case, there is still some hope that this is just a soft patch and that job growth will recover. However, clearly it underlines the importance of Congress pushing ahead with the work on the deficit reduction plan.
Source: Bloomberg.
Big picture, the trend in the employment numbers has clearly stalled – as you can see from the chart above. There is a good chance that, without any negative external shocks, this will indeed turn out to be no more than a soft patch and that the economy will start to pick up again in a few months. However, throughout September the price action in the stock market is likely to debate the possibility of something closer to a double dip. Clearly, this is a time to be cautious and keep your powder dry.
At the end of a report at the beginning of this week (see here) I discussed the fact that I had taken off all of my risk in my clean tech portfolio:
“In my disclosure below, I have stated that I own no stock in any of the companies discussed. This is simply because, having had a reasonable month in difficult conditions, I decided to use Friday’s rally to lock in profits on my clean technology portfolio. I intend to use any weakness into September to buy back my positions in stocks such as Tesla”.
Normally I would prefer to take a much more long-term investment approach. However, this year I have found that I have only been able to make and more importantly keep profits by trading on a fairly short-term basis. Following these employment numbers, it seems very important to keep such a defensive stance in place.
I still intend to buy back into good clean energy companies like Tesla. However, following these numbers I’m going to keep my powder dry for longer and watch the price action for a while.
Good luck.
Disclosure: I have no positions in the stocks discussed.
