I’m sure you’ve all been missing our weekly missives so I’d like to take a moment to explain their absence before adding commentary. We here at Bishop & Associates, Inc., are pleased and proud to formally announce three additions to our firm: Tom Fletcher, Kevin McCauley, and Inez Crumety. Many of you have already spoken with Inez and some of you may have spoken with Tom or Kevin. They are great folks and we welcome them to the fold. They come to us from Forefront Wealth Advisors, which Bishop & Associates has acquired. We have spent the past few months working to diligently close this deal, and that, combined with the normal work-a-day, has put the weekly emails on the backburner. That’s all wrapping up now and this email is the first volley of the official roll out. Tom, Kevin, and Inez bring a wealth (pardon the pun) of knowledge and experience to Bishop, with a combined 44 years in the business. Feel free to call on them any time.
This week’s employment data has caused a growth in the number of people claiming we are at worst heading for another recession or at best going to repeat the summer doldrums of last year. We are not yet ready to join that chorus, and here is why: delving beyond the headline hiring numbers and the number of people dropping out of the work force provides a much better picture of what is going on, and it does not appear as dire to us. April nonfarm payrolls were up a much weaker than expected 115,000; however, the previous two months were both revised upwards and private payrolls were up 130,000. Furthermore, the private payroll numbers have been revised upwards in 22 of the last 23 months, and there is little reason to believe they won’t be revised upwards again. In detail, manufacturing jobs were less robust than in previous months, but this particular sector is still quite strong on an historic basis. In addition, the factory work week rose 0.1, bringing the hours worked up to 40.8, another strong number. The service sector slowed quite a bit, but retail and temp services were up. What brought the weekly numbers down overall should come as no surprise: government payrolls shrank by 15,000. Most of that was at that local level, and that can be further broken down to show the majority of job losses took place in the education sector. One final point: much has been made of the number of people dropping out of the job market, or the labor participation rate. This has come down, but it is important to note that the employment to population ratio has remained steady, thus the participation rate drop is not necessarily wholly attributable to people giving up looking for work. In sum, the devil is in the details, and the details do not paint as glum a picture as you might hear/read/see.
Another piece of economic data that has not gotten much airplay, but we believe is of mild significance is that consumer credit has expanded by $78 billion over the last six months. That is the fastest rate since October 2007. The fact that the Fed Senior Loan Officer Survey showed an increased desire on the part of commercial banks to extend credit to consumers suggests to us that we should further gains in this area in the coming months. These increases indicate to us that the past several years of household deleveraging, that is households paying off debt instead of spending money, has finally run its course. This is consistent with a more positive economic outlook, which is a good thing. We will continue to watch these numbers and the employment numbers closely, but as of today we are not seeing the makings of either another recession or even the large dip of last year.
Next week the only likely market moving events both happen on Thursday: Ben Bernanke will speak, and, of course, the weekly jobless claims.