Where Are The Jobs?

We just had the August jobs report get released and it was nothing short of atrocious.

The August Nonfarm Payroll report came in unchanged, versus estimates of 70,000 jobs to be created during the month. What is even worse is that June and July were revised down an additional 58,000 jobs. The July payroll report was revised down to 85,000 from 117,000, and June was revised down an additional 26,000 jobs. What is interesting to note that despite no jobs being created during the month, the unemployment rate remained unchanged, at 9.1%.

What may be the start of a disturbing trend is the average hourly work week fell to 34.2 hours. Expectations were for 34.3 hours. That could be a sign of a slowdown in activity across the board. Average hourly earnings dropped by 0.1%, not a good sign when expectations were for an increase of 0.2%. If people are losing money, they can not spend. If people can not spend, jobs can not be created.

Breaking down the report via the Bureau of Labor Statistics website is even uglier than the headline number. The Birth/Death model accounted for +87,000. If you take this out, the country actually lost 87,000 jobs during the month of August.

Health care employment rose by 30,000 in August. Mining added 6,000 jobs during the month, and computer systems design and related services added 8,000 jobs in August. Temporary services added 5,000 jobs. The information industry lost 48,000 jobs during the month, with the majority of those coming from the Verizon strike.

Manufacturing lost 3,000 jobs, compared to an average of 14,000 jobs gained during the past four months. Government employment rose 5,000 jobs during the month.

We have not had a 0 print since 1945. If you back out the Birth/Death model, the Verizon strike and the Minnesota government job gain, we lost 60,000 jobs. This is a sad day for Americans who are looking for work. A 0 print does not inspire confidence to the jobless to look for work if they know no one is hiring.

The last time we had a horrible August jobs report, it was the launch of QE2. Yesterday, I wrote about why today might be the most important day for a third round of quantitative easing. An unchanged report is going to go a long way in giving the Federal Reserve ammo to do QE3.

This atrocious report also will weigh heavily on President Obama's jobs speech next week on Thursday. The Republicans will come out firing (if they haven't already) and attack this report every way from Sunday. The Democrats do not have a leg to stand on, with no jobs being created this month, and losing an additional 58,000 jobs in the past two months.

To answer the question of the title, simply put: I don't know, and I don't think anyone else does either.

ACTION ITEMS:

Bullish:
Traders who believe that this report will lead to QE3 might want to consider the following trades:

• Go long gold (NYSE: GLD) and silver (NYSE: SLV). If a third round of quantitative easing happens, you can be sure precious metals will soar.

Bearish:
Traders who believe that QE3 is not coming because of political pressure may consider alternate positions:

• The economy is not creating jobs. If people don't have jobs, they can't spend, invest and consume. Stocks will go down on decreased earnings estimates. Short everything.
  
  

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