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Update - 1/10/2014

Justin Holt, Series 7 and 63
Securities Representative

Good morning,

This morning the markets were rocked with the final non-farm payrolls of 2013. According to the BLS, our economy only added 74K jobs for the month of December when expectations were 197K. November was revised upward, from 203K to 241K.

Before today, moving averages indicated a disturbing downward trend. Data below is using November's jobs data as the most recent month, with its initial reading of 203K:

  • 3mo moving average (Sept-Nov) of NFP is 193K; one year prior (Sept-Nov 2012) it was 197K
  • 6mo MA is 180K; one year ago it was 187K

Now, taking in today's revision to November and December’s large miss:

  • 3mo MA (Oct-Dec) is 172K
  • 6mo MA is 170K

With the latest data set we also see unemployment drop from 7.0% to 6.7%. There are two simple ways to drop unemployment, add jobs or subtract job seekers. Unfortunately, we are at our lowest point in labor force since 1978, or a 35yr low. Participation rate was 62.8%, down from 63%. While Baby Boomers are reaching eligibility for Social Security benefits in larger numbers, it's difficult to attribute these significant declines to that factor alone. A recent study by the FRB St. Louis showed that older workers have nearly maintained their labor participation rate since 2008, while we see the overall rate continues to decline. We're certainly skeptical of a jobless "recovery."

Yesterday we also discussed the most recent Fed minutes, and how we felt that judging from the minutes alone QE would be gone sooner rather than later. We also noted that Yellen takes the lead on the 31st, and that the tone of conversation could change. Well today's figures could certainly change the tone as well. We noted the Fed’s debate about the "waning benefits" of QE and the risk to market stability. Our ongoing joke is that the upcoming FOMC meeting is their most important meeting ever, but there are certainly many unknown factors that could significantly skew monetary policy in the upcoming months.

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