September Jobs Is An Anomaly, But Likely Still Not Good

Today’s jobs report sharply disappointed jobs prognosticators; however, it has had limited effect on the equities market as of this writing.

The markets had expected 90,000 new jobs to be created, but today’s report showed a net 33,000 private sector job losses.

The revisions to July (down 51,000 jobs, from +189,000 to +138,000) and August (up 10,000 jobs, from 156,000 to 169,000) cut an additional 41,000 jobs from the three-month data, bringing the three-month average jobs creation data to just 91,000 jobs.

That’s the lowest three months’ average job creation since January 2011, when the three-month average was just 83,000 jobs (Historically, GDP for 2011 Q1 was just 1.9%. The Atlanta Fed’s “GDP Now” dropped about 30 bps on its update today, from about 2.8% to 2.5%).

Other data point highlights are as follows:

  • Unemployment rate: 4.2% (down 0.2% from August)
  • “U-6”, total unemployed, plus discouraged workers, plus all other persons marginally attached to the labor force: 8.3% (down by 0.3% from 8.6% in August)
  • Labor Force Participation Rate: 63.1% (up 0.2% from 62.9% in August)

We obviously presume the job creation was affected negatively by the hurricanes that hit Texas and Florida, two of the country’s largest economies; however, state employment data will not be released until October 20th to confirm that presumption (Puerto Rico’s and the US Virgin Island’s data is not included in the US jobs report data).

Analysis and Expectations

As you can see from our exclusive jobs by average weekly wages report – the most skewed we have ever produced – the overwhelming number of jobs – some 111,000 – were lost in the Leisure & Hospitality sector. That is likely clearly attributable to Hurricane Irma’s impact on Florida, where theme parks like Walt Disney World, Universal Studios Florida, SeaWorld and other attractions serve millions of visitors annually.

0917 Jobs Creation by Average Weekly Wages

Those theme parks are reopened, and at least Disney (NYSE:DIS) reportedly paid its workers (or “cast members”) for the shifts they lost during the hurricane (There are however reports of rumored Disney layoffs to come).

Nevertheless, it will likely take at least a year for the heavily damaged business infrastructure to be replaced, and likely more time than that.

While the replacement of that infrastructure will certainly boost jobs in the construction, engineering and other skilled trades and professional sectors, and workers in the Leisure & Hospitality sector will certainly return to their jobs in the months and weeks to come. Such replacement of commercial infrastructure and such return to employment end up as a “net zero” improvement to the economy from where it stood before the hurricanes; it’s a version of the “Broken Windows Fallacy” writ large.

At this writing, it’s virtually impossible to segregate the effect of the hurricanes on job creation in the broader economy because the economies of Texas and Florida are so large. The state data is to be released on October 20th.

That aside, however, it seems that jobs creation in other sectors beyond the Leisure & Hospitality sector was virtually moribund, at just 78,000 jobs, with all but three sectors – Financial Activities, Wholesale Trade, and Transportation and Warehousing – creating jobs at a far lower rate than in August.

We’re also concerned about the moribund increase in real wages, as shown in our quarterly chart of real wage increases. We make the annual increase overall to be just 1.26% over last year, after taking account of the trimmed mean personal consumption expenditure inflation rate.

2017Q3 Wage Data

Summary

The September jobs report is certainly an anomaly because of the hurricanes and their effects on economies in Texas and Florida. But we note with grave concern that many of those who were affected by the storm, both businesses and residents, were not insured for the flood damage they suffered. Consequently, we are concerned that personal consumption expenditures, which drive so much of the U.S. GDP, will be cut down significantly in 2017 Q4 as victims of the hurricane borrow and spend to recover. The new debt will likely reduce their ability to consume (as anticipated, incidentally, by the broken windows fallacy).

The Federal Reserve, which purports to be “data” dependent, has shown more than once that it is inclined to be “date” dependent, so we anticipate a December rate rise of 25 bps.

But a fair view of the economy, particularly given the hurricanes, should cause the Fed to stand pat.

In light of the above, we suggest:

  • Long banks, financials, home improvement sectors, consumer durables.
  • Short consumer discretionary, leisure & hospitality.

Author’s note: Our commentaries most often tend to be event-driven. They are mostly written from a public policy, economic, or political/geopolitical perspective. Some are written from a management consulting perspective for companies that we believe to be under-performing and include strategies that we would recommend were the companies our clients. Others discuss new management strategies we believe will fail. This approach lends special value to contrarian investors to uncover potential opportunities in companies that are otherwise in downturn. (Opinions with respect to such companies here, however, assume the company will not change).

If you like our perspective, please consider following us by clicking the “Follow” link above.

Disclaimer: The views expressed, including the outcome of future events, are the opinions of the firm and its management and do not represent, and should not be considered to be, investment advice. You should not use this article for that purpose. This article includes forward looking statements as to future events that may or may not develop as the writer opines. Before making any investment decision you should consult your own investment, business, legal, tax, and financial advisers.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

My RSS Feed

Related Posts:

Coach Needs Time To 'Digest' Kate Spade, Stock Could Take Time To Adjust

Coach Needs Time To 'Digest' Kate Spade, Stock Could Take Time To Adjust

Analysts at Piper Jaffray feel now is the time for Coach Inc (NYSE: COH)’s investors to move to the sidelines as the stock needs a “period of digestion.”

The firm’s Erinn Murphy downgraded Coach’s stock from Overweight to Neutral with a price target lowered from $ 48 to $ 43.

Investors need to give Coach time for it to integrate the Kate Spade brand, which it acquired earlier this year, Murphy commented in a note. In fact, the company said it will be changing its comp reporting structure as part of being a “house of brands” company. Accordingly, it will likely take some time for the stock to see it’s “drivers re-calibrate.”

Investors and the Street have gotten used to Coach’s reporting structure in which it would report NA global comp (including full price and outlet sales combined), the analyst said. The stock’s success as of late has been trading positively on these comp-store numbers as it served as the best proxy to gauge the health of the Coach brand.

In other words, the fashion icon and retailer’s results are likely to show a lower chance of comp and sales out performance moving forward as the P&L line will be more reliant on the Kate Spade EBIT synergies. Over the longer-term, the Kate Spade acquisition will likely generate synergies that will exceed management’s $ 50 million target.

Related Links:

Your Roadmap To Navigating The Coach-Kate Spade Acquisition

The Handbag Pair Trade Revisited: Jefferies Picks Kors Over Coach

Image Credit: By Leitonmahillo (Own work) [CC BY-SA 3.0], via Wikimedia Commons

Latest Ratings for COH

Date Firm Action From To
Oct 2017 PiperJaffray Downgrades Overweight Neutral
Oct 2017 Wolfe Research Downgrades Outperform Peer Perform
Sep 2017 Barclays Initiates Coverage On Equal-Weight

View More Analyst Ratings for COH
View the Latest Analyst Ratings

Posted-In: Erinn Murphy fashion Kate Spade Piper JaffrayAnalyst Color Downgrades Price Target Analyst Ratings Best of Benzinga

My RSS Feed

Related Posts:

Indonesia's first ever IPO by a startup draws robust investor interest

JAKARTA (Reuters) – E-commerce firm PT Kioson Komersial Indonesia Tbk drew strong investor interest for Indonesia’s first ever IPO by a startup, and its shares surged on their trading debut in very thin volumes on Thursday.

The response to the IPO could potentially pave the way for more technology companies in Southeast Asia’s biggest economy to follow in Kioson’s footsteps and list in the domestic stock market.

Kioson raised 45 billion rupiah ($ 3.3 million) by selling 150 million shares, or 23.1 percent of the company’s total share base, at 300 rupiah each. The offering was more than 10 times over-subscribed.

The stock surged as much as 50 percent on its debut, but volumes were very thin with just over 10,000 shares traded.

Indonesia’s startup scene is booming as investors are lured by the youthful demographic of the country of 250 million people, who are increasingly buying anything from tickets to electronic gadgets online.

President Joko Widodo has also aimed to increase broadband access in the sprawling archipelago.

Kioson CEO Jasin Halim said the company previously received offers from venture capital and private equity funds, but decided to go for an IPO because of a difference in valuation.

“The path that startups take is normally to look for venture capital, angel investors and so on…We feel that by taking the IPO route, that’s the method that is the most fair and transparent,” he told reporters. “Let the market value our company.”

On top of showing that an IPO could be an alternative method to raise funds for startups in Indonesia, Kioson also offers retail investors a chance to take part in the capital market and benefit from the “hyper-growth” of startups, Halim said.

Kioson operates an “online to offline” business model, which allows customers to make online purchases and pick up their orders at the ubiquitous kiosks, locally known as “warungs”, across Indonesia.

The company had tied up with 19,000 kiosks as of September, and plans to raise that to 100,000 by 2019, Halim said.

Kioson plans to use the proceeds from its IPO mainly to acquire online vouchers firm PT Narindo Solusi Komunikasi.

Andi Boediman, co-founder of venture capital firm Ideosource, told Reuters he expects more startups to take the IPO route in Indonesia as they could get better valuations from local investors who are more familiar with their products.

“With products that are offered in Indonesia, it’s easier to build a positive perception in Indonesia than to introduce it in other countries,” said Boediman, whose venture capital firm had invested in online retailer PT Bhinneka Mentari Dimensi. (reut.rs/2yJnoHQ)

PT M Cash Integrasi, which distributes online vouchers through its physical kiosks, is also planning to raise up to 300 billion rupiah by offering a 25 percent stake in an IPO. M Cash is a unit of PT Kresna Graha Investama Tbk.

Reporting by Eveline Danubrata; Additional reporting by Cindy Silviana; Editing by Muralikumar Anantharaman

Our Standards:The Thomson Reuters Trust Principles.

Tech

Related Posts:

Google Just Unveiled its Home Mini Internet-Connected Speaker

Google Home Updates: New Home Mini Speaker Is Unveiled | Fortune


Tech

Related Posts: