Non-farm payrolls fell a seasonally adjusted -36,000 in February according the BLS. January nfp’s were revised from -20k to -26k whilst December was revised from -150k to -109k. Details of job losses and gains are detailed below.

Notably there was no net hiring by government agencies which had been touted because of the hiring of census workers. Nor were there any discernible large drops in payrolls because of weather effects. On the positive side, the diffusion index, which measures how widespread job losses or gains are, rose to 48.0 in February, the highest since March 2008. An index reading of over 50 would mean there is more hiring than firing going on.

Temporary help increased by 48k making it the fifth straight month of increase for temporary hiring. Historically temp hiring has been a precursor to full-time hiring coming out of a recession although that history only consists of 2 data points.

Since employment peaked in December 2007, the US economy has shed a massive 8.4 million jobs wiping out all the job growth of the previous cycle. In total the US economy has now shed 6.1% of it’s workforce since the peak just over 2 years ago.

Turning to the household survey, the data is looking increasingly more positive, employment rose 308k in February after a rises of 541k the previous month. The last time the household survey showed consecutive monthly rise in excess of 300k was in February and March of 2006. The household data is notoriously volatile but the trend is encouraging.

The unemployment rate remained unchanged at 9.7% despite a significant increase in employment as 342k new entrants entered the workforce looking for jobs and thus increasing the participation rate.

After a long slow decline, the participation rate has risen for two consecutive months indicating a modicum of confidence returning to job seekers.

Less positive was the average work week falling to 33.1 hours from 33.3 hours in January. This was one metric pundits believe was affected by weather. If that was the case then we should expect this data point to bounce next month.

The chart above shows unemployment by duration broken into the four categories measured by the BLS. What is striking about the current cycle is the degree of long term unemployment. As a percentage of total unemployed over 40% have been unemployed for 27 weeks or more. The chart below demonstrates this more clearly by showing on average how long an individual remains unemployed, topping out at just over 30 weeks in January and only down marginally below 30 in the latest month.

Weather effects aside, the underlying data shows that net employment gains are not far away and according to the household data have already arrived. I would expect to see consistent net payroll additions to start probably from next month. What remains unclear is the magnitude of those gains. Early signs are that more people are starting to look for work. That’s a positive sign from a confidence perspective but will have the adverse effect of keeping the unemployment rate high for some time.

The latest ADP employment report showed a drop of -20,000 private sector jobs in February. Although that makes it the best report in 2 years it still doesn’t indicate hiring has started in any meaningful way. Of course the optimists already have their reasons, bad weather affected hiring in February, however I’ll defer to what ADP had to say on the matter:

Two large blizzards smothered parts of the east coast during the reference period for the BLS establishment survey. The adverse weather had only a very small effect on today’s ADP Report due to the methodology used to construct it. However, the adverse weather is widely expected to depress the BLS estimate of the monthly change in employment for February, but boost it for March. Therefore, it would not be unreasonable to expect the BLS estimate for February (due out this Friday) to be less than today’s ADP Report even though the BLS estimate will include the hiring of temporary Census workers not captured in the ADP Report.

So if weather didn’t affect the ADP number significantly we can only assume that employers are still cautious on the hiring front. As in the quote above, the BLS data is bound to be noisy on Friday with the beginning of a few months of census workers being hired, offset by weather effects. The interpretation of Friday’s data will depend more on what color glasses you’re wearing rather than any clear signals being given by the labor market.

On Thursday the Department of Labor reported that initial jobless claims rose to a seasonally adjusted 496,000 in the latest week to February 20th whilst the 4 week moving average ticked up to seasonally adjusted 473,750. The 4 week MA is up significantly from the 440,000 recorded in early January. Of course there are a lot of seasonal issues at the beginning of the year that can skew the data, however as we approach March those excuses don’t hold any water.

To see sustained job growth of over 100,000 per month, initial jobless claims need to get below 400,000 on a consistent basis. Whilst the hiring of census workers may push non-farm payrolls into positive territory in coming months, that will be short-lived without a meaningful decline in initial jobless claims.

Big Air Limited (ASX:BGL) reported 1H10 results on Monday, recording Net Profit after Tax of $0.63m a 122% increase on the prior period. Revenue fell -9% reflecting the closure of the low margin “off-net” business. More than offsetting the loss of the off-net business was a 40% increase in the high margin “on-net” business which resulted in the significantly higher EBITDA and NPAT results. A summary of BGL’s 1H10 results are below:

In addition to significantly reducing the cost of sales with the elimination of the low margin business, BGL reduced operating costs by -8% and finished the half year in a strong balance sheet position with $2.1m in cash and no debt. The company commented that they are on track to hit the upper end of their previous EBITDA guidance of between $2.5 – $2.8m. That would appear to be conservative given that simply matching 1H10 result for 2H10 would result in EBITDA of $2.9m for the full year.

The company continues to aggressively expand their nationwide coverage during the half spending approximately $1m on network rollout. Their diversifying revenue base is evident by the fact that almost 60% of their revenues now emanate from outside N.S.W.

Based on 1H10 results I have a conservative estimate of NPAT of $1.3m for the full year. Such a result values the company at $0.21 a share, a 71% premium to today’s closing price of $0.12. The company did not mention the possibility of paying a maiden dividend as they did at the AGM in November. However given the high rates return the company is reaping from reinvesting free cashflow into the business, shareholders are better off not seeing any dividends for the time being.

Disclosure: the author owns shares in BGL.

Phosphagenics (ASX:POH) is a small Australian biotechnology company that has developed an innovative method to deliver drugs transdermally, or in other words through the skin. The company recently announced that they had successfully completed a phase 1b trial of their patented patch technology for the delivery of Oxycodone, a chronic pain management drug.

Put simply, the benefit of the patch technology is that it enables a slow, sustained release of the drug meaning that it avoids the peaks and troughs in pain associated with oral delivery. In addition, the patch only needs to be applied once a day whereas oral delivery usually requires 2 or 3 times. The patch also has minimal skin irritation and has the potential to reduce drug abuse.

Oxycodone is a US$3 billion market, 70% of which is focussed on long term chronic pain sufferers, the target market of POH’s technology. The patch technology also has the potential to be applied to other uses such as the lucrative insulin market for diabetics. The company plans to run a phase 2 trial for the oxycodone patch in the second half of the year. Channel 7 ran a brief segment on the oxycodone patch on last night’s news. Click below to watch the report.

Disclosure: the author owns shares in POH.



Australian employment rose strongly in January according to the abs, adding a net 52,700 jobs. As has been the trend, most of those new job additions were of the part-time variety. Part-time employment rose by 35,900 whilst the number of full-time jobs rose by 15,900. Part-time employment has hit new highs whilst the number of people employed full-time still remains more than 100k below the prior peak set back in July 2008.

The unemployment rate ticked down to 5.3% from 5.5% in December, quite a remarkable feat given the economic outlook 12 months ago. However, whilst the employment market continues to grow, there is still a significant amount of slack in the labour market as represented by hours worked during the month. Hours worked dropped -14.8 million in January from December.

With hours dropping but more people on the employment roles, Average Weekly Hours Worked took their biggest dive since September 2007, falling to a new low of 31.95 hours.

Hours worked lagging behind payroll growth is not unusual, as shown above it took almost 4 years for hours worked to regain their prior peak after the early 90’s recession. Even after the mild downturn of 2000 it took a little over 2 years for hours worked to regain their old highs. As shown above the current cycle is tracking a similar path to the 2000 experience.

A recovery of sorts remains in tact in the Australian labour market, the biggest risk in my opinion will continue to be the possibility of slower growth coming out of China as they move to reign in inflation and speculation.

Non-farm payrolls fell -20,000 in January according to the latest establishment survey from the BLS. November was revised from +4,000 to +64,000 whilst December was revised from -85,000 to -150,000. The 3 month moving average of changes in non-farm payrolls is now at -35,000. Details of job gains and losses are shown below:

Also of interest in this report was the annual benchmark revision to non-farm payrolls for the period April 2008 to March 2009. We got wind that this would be an ugly number when the BLS released an estimate a few months ago and it certainly didn’t disappoint. The BLS now estimates that non-farm payrolls were actually 930,000 worse than originally estimated.

Since employment peaked in December 2007, the US economy has shed a massive 8.4 million jobs. As shown below, the US economy has now shed all jobs created since the trough in employment in the last cycle and is now even lower than that previous trough hit in August 2003. Whilst the US population has grown by 30 million in the last decade employment has effectively gone nowhere.

The graph below shows how truly awful the plunge in employment has been in this cycle, easily the worst in the post WWII period. In total the US economy has now shed 6.1% of it’s workforce since the peak just over 2 years ago. The mild recession earlier in the decade took 4 years for employment levels to get back to their previous peak, this time will no doubt take a lot longer.

As usual the talking heads on bubble vision were confused how non-farm payrolls could be down whilst the unemployment rate fell to 9.7%. For some reason they need to be reminded that the unemployment rate is derived from the household survey whilst changes in payrolls come from the establishment survey.

In contrast to the establishment survey the household survey showed an increase in employment of +541,000 almost completely reversing the decline of -589,000 from the previous month and thus the reason for the fall in the unemployment rate. Such volatile numbers make is difficult to put much credence in one month’s numbers so as usual we won’t get too excited until we get some confirmation. However, there were other signs of life in employment numbers.

The labor force participation rate showed a slight uptick in January after falling for 6 straight months. A rising participation rate would suggest some previously discouraged workers may be feeling a little more confident about reentering the workforce. Perversely a rising participation rate has the effect of keeping the unemployment rate elevated, the opposite of what we have been seeing over the past 6 months.

Those working part-time for economic reasons has also made a u-turn and has now been heading down since October last year.

Another positive sign is the uptick in average weekly hours worked, now at 33.3 hours, off the bottom of 33.0 seen in October.

Whilst those unemployed for 15 weeks or more appears to have peaked, the news for long term unemployed continues to worsen with those unemployed for more than 6 months hitting a new record.

There are definitely some positive signs appearing in the US labor market, and we will almost surely see positive job growth before the end of the 1Q10, however that pace of job growth is unlikely to make a significant dent in the unemployment rate in 2010. Do not be surprised to see the unemployment rate tick back up again during the course of the year.

A hat-tip to Deano for directing me to the following story about growing mortgage stress amongst first home buyers in Australia. Unlike the rest of the world Australia did not undergo a sizeable correction in home prices as a result of the misguided policies of the government to lure first time home buyers with cash giveaways that only had the effect of driving up prices.

Now an increasing number of heavily indebted Australian households are finding it tougher to make the mortgage payments. It didn’t take a genius to see this would end in tears. Australian home prices need a healthy correction so this is not all bad news. However, the problem is that the government is so heavily wedded to the narrative that their own clever economic policies helped Australia avoid a recession, that they will probably throw more taxpayer money at the problem to prop up the bubble and keep the fiction alive. From news.com.au

Aussie’s struggle to foot mortgage bill

• 45% of first home owners in mortgage stress
• Homebuyers using credit cards for repayments
• Numbers to worsen as rates continue to rise

ALMOST half the first-home buyers lured into the market by the Rudd government’s $14,000 grant are struggling to meet their mortgage repayments and many are already in arrears on their loans.

Thousands of young homebuyers are using credit cards or other loans to meet obligations, while those in “severe stress” are missing payments, the Sunday Telegraph reports.

Just weeks after the grant was officially withdrawn, a survey of more than 26,000 borrowers conducted by Fujitsu Consulting revealed that 45 per cent of first-home owners who entered the market during the past 18 months are now experiencing “mortgage stress” or “severe mortgage stress”.

Those numbers are likely to worsen in the next 12 months as interest rates rise by an expected one per cent. On Tuesday, the Reserve Bank is almost certain to raise the cash rate by 0.25 per cent to four per cent, taking the typical standard variable mortgage rate to around 6.90.

If lenders pass on the hike in full it will add $47 a month to the typical $300,000 mortgage.

“The dream of home ownership has turned sour for many thousands of first-home buyers now that the reality of rising interest rates is kicking in” said Martin North, managing director of Fujitsu Consulting.

“Rising utility costs and school fees are also cited as reasons for hardship, and many first-home owners are living without proper furniture or carpets as they divert all their cash to their monthly repayments.”

During the past 18 months, more than 135,000 first-home buyers have entered the market, encouraged by grants of up to $24,000 in NSW, plus as much as $18,000 in stamp-duty relief. More than 50 per cent of first-home owners are forecast to fall into the mortgage stress category by the end of 2010.

The crisis will be seen as vindication for critics of the stimulus program, who argued that the Government was enticing buyers who were not financially ready for home ownership.

Steve Keen, professor of economics at the University of NSW said last year that the homeowner grants were a “disaster waiting to happen”.

“The grant panicked first-home buyers to rush into the market, which pushed prices up by far more than the grant itself,” he said yesterday.

AMP Capital chief economist Shane Oliver said: “This is a scary survey. It provides a clear warning to the RBA not to push rates up too far or too fast.”

January came in with whimper with all major indices falling across the board. The DJI did the best falling -3.5% whilst the Shanghai Composite fell -8.8%. If you want to take the glass is half full view, 2010 was the best January for the S&P500 in the last 3 years. January 2008 saw a -6.1% slide in the S&P500 whilst in 2009 the S&P500 fell -8.6% as shown below.

Of course this time of year brings out the old adage, as goes January so goes the year, meaning that if the stock market is down in January it will be down for the year and vice versa. But just how accurate is the so-called January effect? After all, January 2008 was down and so was the year, however if you invested on that basis in 2009 you would have missed a year of stellar returns in the stock market.

Taking a look at the S&P500 over the last 60 years, the January effect seems to have some predictive value although that comes with some caveats. As shown in the table below, over the last 60 years the S&P500 has finished higher in January 37 times and subsequently the S&P500 finished the year higher 34 times. Or said another way 92% of the time January has finished higher the year has also finished higher. However when the S&P500 has finished down in January the year has only finished down 57% of the time or 13 times out of 23 in the last 60 years.

The results are not unexpected since as we know over the last 60 years, the S&P500 has risen on an annual basis 73% of the time or 44 times out of 60. So of course the January effect has better predictive ability when the S&P500 finishes higher. However since January 2010 was a down year you might as well flip a coin as rely on the January effect for guidance on how the year will end.

Always worth a listen is James Chanos of Kynikos Associates. Jim talks thoughtfully on the growing bubble in China.