Hallelujah! The latest jobs numbers, though pretty darn ugly, are beginning to throw off some hopeful signs.
If you're skeptical, that's legitimate, since companies continue to chop their work force big time. The latest is Johnson & Johnson, which plans to slash 8,000 jobs. Further, Friday's release of October job numbers was a real bummer in that it showed a jump in the jobless rate to 10.2%, the highest level since 1983, the 22nd straight month of rising unemployment, and an additional 190,000 lost jobs, raising the number of out-of-work Americans to about 15.3 million.
Still, first glances are often deceiving, particularly so if your immediate perception is that all the jobs news is bad news. In this case, former Goldman Sachs strategist Fred Dickson tells me, dig a little deeper into the jobs report and you'll see marginal signs of incremental improvement. He points, in particular, to an uptick in overtime hours, a slight improvement in hourly wages, and a four-month moving average of job losses of under 200,000.
"We're seeing precursors to a positive upturn in employment and a slowdown of the deterioration in unemployment," Dickson tells me.
The employment report also showed some other sunny signs, namely that the 190,000 lost jobs were the lowest since August of 2008. Likewise, the number of jobs lost both in August and September were revised downwards. Yet another bright note was the increase in jobs in temporary help services for the third consecutive month, an indication hiring is likely to pick up.
Interestingly, much of the surge in unemployment represented a hefty rise in job losses among teen-agers, whose jobless rate rose from 25.9% to 27.6%. In contrast, October unemployment for those 25 years of age or older advanced just minimally to 8.7% (well below the 10.2% national rate) from 8.6% in September.
Fred Fraenkel, chairman of investments at the $1.2 billion Beacon Trust Co., believes the latest jobs numbers suggest "we will hit zero lost jobs some time in the first quarter of 2010." Further, he predicts, new jobs will begin to be added in the first half of next year, not, as generally expected, in the second half.
Judging from the stock market's Friday reaction to the jobs news, that 10.2% rate was hardly as negative as some Wall Streeters might have expected. Surprisingly, the Dow actually rose that day nearly 17.5 points after having been down earlier in the session more than 40 points.
How come an up day? Because, says San Francisco money manger Gary Wollin, that news wasn't a great shock. He notes, for example, that the president, Bernanke and Geithner have talked about 10% plus unemployment steadily over the past six months. Wollin also thinks monthly job losses are in the process of winding down.
Bill Rhodes, head of Boston-based Rhodes Analytics, which doles out investment advice to institutional investors, views the latest loss of an additional 190,000 jobs as not as good as expected, but also not as bad as it had been. September showed 263,000 lost jobs. Rhodes also believes we could see job losses cease in April and May. One positive note from the current pace of job losses, he points out: it will be very hard for the Federal Reserve to hike interest rates.
Dickson thinks the cloudy employment picture is in the process of turning somewhat brighter, which he sees as an economic plus and another reason to take a more positive view of the stock market.
He figures it's a good time to buy stocks, but selectively and with the focus on quality. Dickson looks for the Dow to end the year at about 10,300, versus its current 10,023. He favors the shares of six companies, each of which boasts a strong balance sheet, has posted dividend growth for 10 straight years, has exposure to an expanding global economy and offers current dividend growth of 2% or more.
The six are McDonald's, Exxon Mobil, Procter & Gamble, Emerson Electric, Johnson & Johnson and United Technologies.
Write to Dan Dorfman at DandorDan@aol.com