A PUNCH IN THE GUT

This morning's job report caught many off guard.  While the expectation was job creation of somewhere in the 200,000 range, the actual number came in at a paltry 88,000.  The futures market immediately took note and dropped a full percentage point on all of the major indices within 60 seconds of the release.   Looking beyond the headline numbers, it is hard to find any silver linings.  The labor participation rate (those actually in the work force) dropped to its lowest level since 1979 and there are now a record 90 million Americans that are no longer even looking for work.  The labor participation rate comes in at 63%.   The increase in the number of people leaving the work force actually served to reduce the headline unemployment rate illustrating how irrelevant this number has become.  It should also be noted that retail lost jobs while professional services gained jobs in line with previous months.  The lost retail jobs have nothing to do with sequestration and have everything to do with the increase in payroll taxes and consumers having less to spend.  Job losses having to do with sequestration will primarily hit the government jobs and the private sector professional service jobs.  Those potential job losses will begin to show up in months to come.  The numbers do not bode well for future reports. 

Where does this leave us?  It will be interesting to see where the market closes today and where it is after Monday's close.  Often the knee jerk reaction of the market is reversed within a day or two so we shall see.  If there was a shock needed to get those thinking about selling to sell, today's release is as good a reason as we have had in a while.  Alternatively, many had come to believe that the Fed was beginning to think about scaling back their asset purchases (taking away one of the biggest drivers of the market increase over the last 4 years).  However, today's numbers throw cold water on any thoughts that the Fed will be done any time soon.  Perhaps traders would rather have an accommodating Federal Reserve than a growing and vibrant economy.  We shall see.  Earnings start coming with Alcoa's release next week so traders will have much to digest over the next few weeks.  As our recent newsletters have pointed out, the last three years have started much the same with large gains in the first quarter and large corrections in the second quarter.  Are we getting ready to see a repeat of the last few years?  Time will tell.