Daily Agenda: Is the Labor Department Report the Whole Employment Picture?

People’s Bank of China leaders confirm lending facility activity; German output numbers the latest disappointment from the country.


Luke Sharett

The U.S. Department of Labor October employment report showed the creation of 214,000 new jobs last month and the unemployment rate dropping to 5.8 percent. By deciding to end the Federal Reserve’s bond purchase facility, policymakers signaled confidence that the pace of recovery in labor markets is sustainable despite slowing growth abroad. Yet how much has the U.S. labor market actually improved? The reduction in slack has been undeniable. The full scope of underemployment remains unknown however. Stubbornly low participation rates and a U-6 reading that is nearly double the official percentage of jobless suggests that the U.S. labor market recovery is far from over. This is reflected in wage growth of 2 percent, which just slightly outpaces mild inflation. Gluskin Sheff chief strategist David Rosenberg summarized the glass half empty or half full dilemma facing investors in a research note earlier this week. “It was a bit strange to have 248,000 net new jobs created in September manage to trigger a mere 0.2 percent rise in income and a 0.2 percent retreat in spending,” he wrote.

China reports progress of stimulus plan. The People’s Bank of China yesterday released its quarterly monetary policy statement, confirming the already widely reported new medium-term lending facility. The report indicated that more than 769 billion yuan ($125.6 billion) had passed to primary lenders since the program began two months ago. Despite the easing measures, analysts continue to be divided on the likelihood of a cut in benchmark rates or reserve rations as China’s central bank faces the task of defending Beijing’s growth targets.

German output latest in string of disappointing data. September industrial production data released in Germany today came out at a seasonally adjusted rate of 1.4 percent for the month, below consensus forecasts, versus a revised 3.1 percent contraction in August. These numbers are the worst showing for the index since 2009. Slowing activity due to slackening regional demand continues to weigh on German industrials as debate over economic policy measures continues among European Union leaders.

U.K. trade gap expands. According to figures released today, the trade deficit in the U.K. widened by a margin beyond consensus expectations for September. A large rise in energy imports combined with continued weakness in demand from trading partners on the Continent were the primary drivers behind the miss.

Quarterly earnings season marches on. Among the large-cap companies that will report earnings today is Houston– and Paris–headquartered Dresser Rand. The oil, gas and energy industrial equipment manufacturer is delivering its quarterly earnings after the market close. Louisville, Kentucky–based health insurance firm Humana disjointed analysts this morning with third-quarter results that fell short of analysts’ forecasts. Reasons the company gave were the costs of treatments for Hepatitis C and of navigating state and federal health care exchanges.

Portfolio Perspective: Is Greece Still a Problem?Robert Savage, CCTrack Solutions

European Central Bank president Mario Draghi has had some success in talking down the euro by promising to increase the ECB balance sheet by €1 trillion ($1.24 trillion) yesterday. The Stoxx Euro 600 printed five-week highs. Today, banks are back, dragging down shares into the U.S. unemployment report. The fear factor that isn’t getting enough focus is Greece. Sources reported to Market News International that the Eurogroup meeting rejected the Greek proposals for the return of the troika. Euro zone finance ministers faced explanations from Greek Finance minister Gika Hardouvelis that Greece is willing to accept a series of structural reforms but not unpopular social security measures and group layoffs. “It was a difficult discussion with many interruptions, as most finance ministers were displeased with Greece’s insistence to omit what has already been agreed,” says the source.

Robert Savage is the CEO of CCTrack Solutions, a New York–based hedge fund firm. CCTrack is backed by Citic Capital Holdings, which in turn is backed by the sovereign wealth funds of China and Qatar.