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INVESTING IDEAS NEWSLETTER

Takeaway: Current Investing Ideas: CCL, DRI, FDX, FXB, GHL, HCA, RH, TROW, WWW and ZQK

INVESTING IDEAS NEWSLETTER - hedgeye slab

Below are Hedgeye analysts' latest updates on our high-conviction stock ideas. Please note that we added two new names to Investing Ideas - Darden Restaurants (DRI) and Quiksilver (ZQK) this week. 

Here are CEO Keith McCullough's refreshed levels for each stock.

 

INVESTING IDEAS NEWSLETTER - LEVELS

 

Trade :: Trend :: Tail Process - These are three durations over which we analyze investment ideas and themes. Hedgeye has created a process as a way of characterizing our investment ideas and their risk profiles, to fit the investing strategies and preferences of our subscribers. 

  • "Trade" is a duration of 3 weeks or less
  • "Trend" is a duration of 3 months or more
  • "Tail" is a duration of 3 years or less

Ideas Updates

The latest comments from our Sector Heads on their high-conviction stock ideas.

 

CCL – Got "Polar Vortex"? In case you missed it, Niagara Falls is frozen. Extreme cold temperatures have affected approximately 200 million people in the United States.

 

What the heck does this have to do with Carnival you're asking?

 

INVESTING IDEAS NEWSLETTER - niagara

 

Gaming, Lodging & Leisure analyst Todd Jordan believes the ridiculously cold weather outside ought to get everyone thinking about escaping to warmer weather. That is a very good thing for cruisers, according to Jordan, and big beneficiaries include Carnival.

 

Shares of Carnival are up 15% since we added it to Investing Ideas. Meanwhile, the S&P 500 is up around 2.5%. 

 

Incidentally, "Wave Season" has just started and promotions are rolling in. Our first look into Wave pricing is on January 20. We will provide analysis as it becomes available.

 

DRI – Restaurant Sector Head Howard Penney added Darden Restaurants to Investing Ideas this week. Click here to read the full report.

INVESTING IDEAS NEWSLETTER - dar

 

FDX  Hedgeye Industrials Sector Head Jay Van Sciver says shares of FedEx continued to hold up well this week.  For the record, shares of FDX have risen 45% since we added it to Investing Ideas, compared to a 17% return on the S&P 500.

 

Van Sciver notes that recent transport data from rails to trucking to airfreight suggest reasonably good industrial activity in calendar 4Q 2013.  That positive momentum may help FDX into 2014.  

 

FXB – The British Pound is holding its bullish formation, which we expect will continue to be supported by prudent monetary policy from the BOE and strengthening economic fundamentals.

 

INVESTING IDEAS NEWSLETTER - UKFLAG

 

We believe that positive UK economic data out this week and the BOE’s decision on Thursday to keep the main interest rate unchanged at 0.50% and maintain the asset purchase target will provide further support for the GBP/USD. PMI Services of 58.8 for DEC reflected another month of healthy expansionary activity. New Car Registrations were up 23.8% in DEC Y/Y (a level not reached since 2010) and signal to us that strong underlying confidence is returning to the consumer. In addition, Industrial Production was another bright spot, rising 2.5% in NOV Y/Y, and home price remain elevated and were up 7.5% in DEC Y/Y according to Halifax House Prices.

 

GHL – Greenhill & Company continues to be our preferred way to invest in a recovery in the mergers and acquisition market (M&A).  Global M&A volume has been flat for the better part of three years with global executives hesitate to engage in excessive deal making because of the current uneven economic recovery, new emerging regulatory rulesets which remain largely undefined, and still a corporate depression mentality remaining from the Financial Crisis.

 

INVESTING IDEAS NEWSLETTER - ghl

 

However, the second half of 2013 has started to show a glimmer of hope of improved M&A activity driven by a recovering Europe, new fundraising from the Private Equity sector in the U.S., and recovering global stock markets that although corporation more valuable equity currencies to do deals. Greenhill is a well diversified advisor with penetration in each of these segments to capitalize on both a rebound in Europe and improved reinvestment cycles from domestic Private Equity firms. In a mid cycle M&A environment, we calculate that GHL has the most earnings leverage versus the other independent M&A advisors Lazard and Evercore and hence is our favorite long idea in the group.

 

HCA – Healthcare sector head Tom Tobin says HCA Holdings was the dog that got wagged by the tail when Community Health Systems (CYH) preannounced a dreadful quarter, at least in terms of volume, and then went on to say they expect to do at least as well as consensus is expecting in 2014.  Hospitals rallied, and HCA, at least for now, is trading above $50. 

 

Tobin has been watching two data points – maternity and flu –which he says tell a lot about what we need to know to forecast admissions.  These two items are responsible for a huge portion of admissions, and both have been weak.  In Tobin’s proprietary survey of OB/GYNs, maternity trends continue to trend down significantly.  And flu appears to be running 20% below last year's emergency levels. 

 

But neither of these cases pays very well or generates a great deal of profit.  Asks Tobin, if CYH announced their volume was down 10% in Q4, should we be worried about HCA?  Yes and no, says Tobin.  The chart below suggests HCA and CYH live in similar neighborhoods, but HCA has consistently performed much better.  “At some point performance in HCA becomes a concern,” says Tobin, “and we'll try and find a good point for an exit, but for now we'll stick with it.”

 

INVESTING IDEAS NEWSLETTER - hca

 

RH – Retail sector head Brian McGough calls Restoration Hardware “the biggest idea in retail today.”  The stock doubled in 2013, and McGough thinks it should triple within three years.  McGough’s thesis is based on sheer market share gain in the home furnishings space -- everything from furniture, to kitchen, to artwork, to collectibles, to literally everything someone might want to put in a higher-end home.  

 

INVESTING IDEAS NEWSLETTER - rh

 

Almost every RH bull (and there aren’t many) will hinge their thesis on square footage growth from grossly inadequate 9,000 sq/ft boxes to 40,000 foot anchor real estate.  McGough concedes that floor space expansion is important.  But he says it’s missing the point.  What good is having bigger stores without the appropriate mix of product to meaningfully take up productivity?  That’s where it all begins with RH, and that’s where McGough thinks the company is unmatched.  

 

McGough thinks RH will become to the home furnishing space what Ralph Lauren is to Apparel, and Nike is to Athletics.  Ultimately, the math translates to 1) square footage tripling, 2) sales/sq/ft going from sub $1,000 to $1,600 despite significantly larger boxes, 3) the RH Direct business growing by 2-3x. 4) Revenue topping out over $5bn vs. $1.5bn today. 5) Ultimately, McGough thinks we’ll see better than $10 in EPS power, with a 50% EPS compound annual growth rate over time. 

 

TROW – In our most recent report this week of asset related flows into mutual funds and ETFs, all equity related products tallied a $10.5 billion total inflow ($6.0 billion into mutual funds and $4.5 billion into equity ETFs) which compared to a $3.0 billion outflow in fixed income mutual funds and ETFs. This resulted in a net spread of $13.5 billion in favor of equity products considering the positive inflow into stocks and the outflows in bonds. This result this week is significant considering it is double the 2013 weekly average of just a $7.8 billion spread to equities which highlights that the asset allocation shift from bonds and into stocks is accelerating. When looking at a 52 week moving average of this relationship, this asset allocation shift is getting more pronounced in favor of equities which leads us to estimate that this investable trend is continuing (actually its accelerating in favor of equities).

INVESTING IDEAS NEWSLETTER - trow

As a result of this ongoing shift by investors, our favorite asset management stock remains T Rowe Price (TROW), a predominately equity only asset manager with industry leading stock fund performance that should gather outsized net new assets because of their top performing fund family.  TROW is set to report earnings on January 28th and we expect a well received release from the company considering our recent positive conversation with management.

 

WWW – Retail sector head Brian McGough says he’s “keenly aware of not wanting to overstay our welcome” onWolverine World Wide, given how it worked in 2013.  But McGough says that this is the first year where the real revenue synergy should start to kick in.  That’s usually not the right time to walk away from a name unless a) estimates are too high, or the stock is overly loved.

 

McGough says estimates are low by 20% next year, and then tack on an incremental 10% each year thereafter. To reiterate the underlying call: the Street is grossly underestimating the revenue growth opportunity of the PLG brands (Sperry, Keds, Saucony and Stride Rite).  The simplest way to put it is that the old “legacy” WWW is the most global footwear company in the world.  It sells about 65% of its units outside the US, and has seamless and sophisticated systems (SAP). The PLG brands, which are better quality overall, sell only 5% overseas, and that’s simply because its former owner (Collective Brands) spent capital first on Sperry, then on US Payless stores, and did not have anything left in the kitty for international distribution of PLG brands.

 

So now WWW can scale this superior content over its existing lean/mean infrastructure. McGough thinks it will drive an incremental $2bn in revenue over 5-years and an extra 400bp of margin.  In the end, this gets to earnings power of about $4.30, which is 50% ahead of what management guided at its recent analyst meeting. 

 

McGough concedes “WWW probably won't make you rich here, as it will likely take a good 4-5 years to double.”  McGough says he would rather get more aggressive on a pullback. But he says “we know people who have been waiting for a pullback for the last 50%.  In the meantime you’re paying a high-teens multiple for mid-20s EPS growth -- and this company has one of the best track records of anything in Consumer.”

 

ZQK – Retail Sector Head Brian McGough added Quiksilver to Investing Ideas this week. Click here to read the full report.

INVESTING IDEAS NEWSLETTER - qk

 

Macro Theme of the Week – Welcome To 2014

Hedgeye’s Macro team kicked off the new year this week with our 1Q14 Macro Themes call, the first of our quarterly Macro calls for 2014.

 

As we do four times each year, our Macro team put up what we see as the three key themes for the coming quarter.  These themes will guide our asset allocation and investment strategy as we head into the year.

 

As a reminder, last quarter’s themes were 

  • #EuroBulls 
  • #BernankeVsCongress 
  • #GetActive

 

This year starts off with Q1 themes: 

  • #InflationAccelerating
  • #GrowthDivergences
  • #FlowShow.

(Click here for a video of CEO Keith McCullough discussing the Q1 themes.)

 

The Hedgeye Process

 

We will dive into the three themes in upcoming Investing Ideas, laying them out in detail and tracking them as they unfold during coming weeks.  First, to reiterate what sets Hedgeye apart: we have spent our careers watching the crowd behavior of Wall Street.  Whether you call it Common Knowledge, Received Wisdom, Groupthink, or Mass Hysteria, the vast majority of the “smart money” (around 96%, according to our figures) tends to do almost exactly the same thing, at almost exactly the same time, over and over. 

 

This “rinse and repeat” cycle moves titanic sums of cash across the globe, charging commissions and management fees everywhere it goes, but doesn’t generally make you more money than average.  Indeed, if “average” is what you are looking for in your investment portfolio, then the really bad news is that, on average, the “average” investment professional often turns in below-average returns for their clients – even while charging average fees.  Replace the word “average” with “mediocre” and you start getting closer to the average truth.

 

In our ongoing commitment to not be Average, we look at what makes the average professionals “average” and note a few common themes that average financial professionals embrace as Gospel.  These include: reacting to key data points; embrace of Keynesian economic principles and government policies based on them; and adherence to standard metrics such as 50-day and 200-day moving averages (for market dynamics), and seasonally-adjusted employment data (for government policy).

 

Hedgeye’s macro process is a three-pillar structure, each pillar built to differentiate itself from, and take advantage of the way the “average” investor looks at the market. 

 

Global Macro Risk Management

 

The first pillar combines History, Math, and Behavioral Psychology. 

 

History: Most investors’ processes are based on a short time horizon – we hear people talking about 50-day and 200-day moving averages all the time, but no one even remembers what the bond market was doing fifty years ago.  The failure to observe how markets have behaved over very long time periods means most market professionals are taken by surprise by big events.  Wall Street and the media have come up with all kinds of names for stuff they failed to see coming.  Perfect Storm.  Black Swan.  Tail Risk.  Outlier Events.  All describe events for which almost no one was prepared.  And events for which risk managers should have been prepared.

 

This inability to look to the past leads the average investor to invest recklessly, believing that “this time is different.”  When their investments don’t work out, they smack themselves on the forehead and say “this has never happened before!”  To paraphrase a famous quote: Risk managers who do not study the disasters of investment history are condemned to repeat them.  At Hedgeye, we look to history to see what happened in the past, how it unfolded, and what its consequences were.  When faced with an unfamiliar phenomenon, we try to ask “When did this happen before?” and look to the historical record for guidance.

 

Math:  The average investor looks at economic theory, often expressed in key data points: if unemployment is at X%, then the equities market will do Y.  Hedgeye’s Macro work recognizes that, by the time the data point has been publicly announced, the trend has already taken hold – indeed, often it has already played out and is already being replaced by a new trend.  While the rest of the world is looking for proof that things have changed, we are looking for evidence that things are starting to change.  Hedgeye’s macro work focuses on the slope of the line, looking for indications that trends are starting to shift.  These changes are small – too small to be recognized as individual data points.  But the really important changes in macro tend to happen at the margin, in almost imperceptibly small ways.  By the time the change is obvious, it has already happened.  As a mathematician might say, we look at The Rate Of Change Of The Rate Of Change.

 

Behavioral Psychology: The average investor works from a standard menu of concepts.  One of these is Valuation – which leads to predictable outcomes, since everyone uses the same basic tools.  Another is “gut instinct,” either their own, or that of their investment guru.  Behavioral Psychology helps us to see through short-term market movements.  Investors, like other people, routinely believe that they know something no one else knows, that they have an insight no one else has, and that they will succeed where others will not.  This completely misses one of the few fundamental truths of the way the world behaves, which is Reversion To The Mean.  

 

Mean Reversion is a statistical concept that most people need to understand – because most people don’t want to believe it exists.  The fact is that Mean Reversion explains an awful lot of what you thought was Free Will, not to mention the economy.

 

If you’ve ever gone on a diet, you probably experienced Mean Reversion.  People have what the medical profession calls a “set weight,” the long-term average weight they tend to maintain.  You can go on an eating binge and gain ten pounds, but you will likely shed most of it over the next few months and return to more or less your “set weight.”  You can go on a diet and be thrilled when the scale shows you have lost ten pounds.  But try as you might, over the next few months, your weight will likely creep back to your “set weight.”  You have just experienced Mean Reversion, the statistical principle that, over long periods of time, most things tend to get back to where they pretty much have always been.”

 

The deep psychological reality is that most people believe Mean Reversion applies to everyone else, but not to them.  This allows people to fool themselves into believing that “this time is different.”  Then when they lose money they take solace in the fact that “this has never happened before.”  For this you paid for an ivy-league MBA?  There has to be a better way.

 

The second pillar of our macro process is Fundamental Analysis.  Hedgeye’s global macro model looks at Growth, Inflation, and government Policy (the “GIP” model).  History matters: where we’ve been will tell us a lot about how we got to where we are, and what we are doing today is a guide to where we are likely to be in the future. 

 

Our fundamental macro process uses a four-quadrant GIP model that tracks the shifting relationships between economic growth, inflation, and economic policy.  Says Hedgeye’s McCullough, “If you get the slope of the line of both growth and inflation right, you will get a lot of other things right – particularly in your P&L.”

 

The third pillar is Hedgeye’s proprietary quantitative modeling process.  During nearly ten years as a successful hedge fund manager, Keith developed a 27-factor model that tracks market levels in real time.  The model breaks price trends into three major durations that we call TRADE, TREND, and TAIL, measuring price trends over periods from three weeks, to three years. 

 

Hedgeye’s combination of fundamental and technical tools has allowed us to spot trends early, and has helped us guide our subscribers to investment success over the past five-plus years.  We welcome you to join us as Hedgeye launches into 2014.  Our macro work indicates there are some significant shifts taking place in global market dynamics.  Stick with us as we give you the call-outs.

 

Happy New Year from Hedgeye.

 

 

 


MD: REMOVING MEDNAX FROM INVESTING IDEAS

Takeaway: We are removing MEDNAX from Investing Ideas.

MEDNAX is coming up against some difficult comparisons in their Q413 report.  In fact, births face the toughest compare in the last six years when they report numbers and guide Q114.   

 

MD: REMOVING MEDNAX FROM INVESTING IDEAS - baby

 

Our recent physician survey is telling us births are likely down in the US in Q413.  A second quarter in a row of negative year over year organic growth, and likely worse sequentially than Q3, is not a risk we want to take. 

 

Meanwhile, sellside sentiment is falling, which is negative for MD shares.  The sellside actually does a good job on MD, unlike most other stocks.  

 

Bottom line: Most of our catalysts to the upside seem played out.  We'd rather sidestep the quarter and take another crack at the name from a lower price and lower expectations.

 

MD: REMOVING MEDNAX FROM INVESTING IDEAS - deliveries completed JAN13


THE SBUX-WFM CONNECTION

Takeaway: Does a negative view on WFM heed caution on SBUX?

It was not too long ago that the success of Starbucks and Whole Foods Market was linked to the “higher end” consumer, particularly when compared to their counterparts McDonald’s and Walmart.  Accordingly, both SBUX and WFM have been strong performers, as the “higher end consumer” has proven to be much more resilient in a stagnant economy than others.

 

THE SBUX-WFM CONNECTION - link

 

 

With another downgrade today, the street has turned decidedly negative on WFM.  We offer no opinion on the stock at this time, but a negative outlook could suggest that “higher end” consumers are starting to feel the pinch.  If this plays out and WFM sees same-store sales growth begin to slow, we have reason to believe the same could happen at SBUX.

 

The tepid jobs number reported earlier today is also concerning and, on the margin, bearish for SBUX.  We continue to believe street estimates are too high for SBUX and with 78% of analysts having a “buy” rating on the stock (versus only 50% for WFM), sentiment could be peaking.  After being one of the biggest fans of SBUX over the past 5 years, we see plenty of reason to be cautious on the stock in the early stages of 2014.

 

THE SBUX-WFM CONNECTION - SBUX EEEG

 

THE SBUX-WFM CONNECTION - SBUX ANALYST

 

THE SBUX-WFM CONNECTION - WFM EEEG

 

THE SBUX-WFM CONNECTION - WFM ANALYST

 

 

Feel free to call with questions.

 

 

Howard Penney

Managing Director

 


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.64%
  • SHORT SIGNALS 78.57%

Reality Check on the Jobs Report

Takeaway: We wouldn't dismiss today's jobs data outright, but we wouldn't materially shift our positioning on one outlier print.

Forecasting Folly:  If you’ve followed us here at Hedgeye for any period of time, you already know that we don’t pretend to have any edge on the monthly non-farm payrolls figure. That shouldn’t come as a surprise.  While myriad market pretenders toss out their predictions, no real pro or analyst will.

 

Incidentally, what really matters is non-seasonally adjusted rolling US Jobless Claims.

 

Reality Check on the Jobs Report - 778

 

The BLS and ADP figures are certainly co-integrated on a multi-month basis and the trend in the initial claims and other higher frequency employment data can offer some probability weighted, directional insight and some fertile fodder for the tea leafers, but predictive value on a month to month basis is notoriously poor. 

 

It’s not the number itself, but the markets reaction to it that drives our subsequent allocations.

 

Summary Take:  In short, +74,000 was obviously a disappointment vs. prevailing expectations and an outlier verses the balance of higher frequency labor market data. We wouldn't dismiss today's data outright, but we wouldn't materially shift our positioning on one outlier print.

 

With 273K people out of work due to bad weather (vs. an average of 166K over the prior 5 December’s) weather is being held out as the biggest distortive factor. With our retail and restaurant analysts (who rarely cite weather as a discrete swing factor) citing weather as a drag on traffic also, we'll assume the unusually inclement weather likely did, indeed, have some impact on construction and transports/trade employment and drag on hours worked.   

 

Reality Check on the Jobs Report - keepcalm

 

Strategy:  The unsurprising price response to today’s jobs data is down dollar/down bonds as “no-taper” expectations get priced in at the margin. (We outlined how to play a breakdown in the dollar in our 1Q14 macro themes call yesterday.) While we'll monitor the dollar weakness closely, in regards to the more immediate term and today’s employment data specifically, we’ll take the other side of overbought/oversold moves in today’s price action.   

 

In the context of the broader labor market data, where the preponderance of evidence remains positive with ADP, initial claims, ISM manufacturing and ISM services all reflecting moderate, ongoing improvement,  the BLS data sits as a single negative outlier. 

 

Unless we see confirming fundamental evidence alongside a shift in risk management signals (across SPX, VIX, DXY, 10Y Treasury), we’re unlikely to pivot on our generally positive view of the domestic labor market because of today’s data in isolation – particularly given the positive revision, the weather caveat and the ongoing, significant seasonal distortion.   

 

Editor's note: This is an excerpt from Hedgeye research earlier this morning. If you like what you see and would like more information on how you can subscribe to our research click here.

 

 

 


DECEMBER EMPLOYMENT: AT LEAST IT'S INTERESTING

SUMMARY 

Forecasting Folly:  If you’ve followed us for any period of time, the fact that we don’t pretend to have an edge on the monthly NFP figure is not a surprise. 

 

The BLS and ADP figures are certainly co-integrated on a multi-month basis and the trend in the initial claims and other higher frequency employment data can offer some probability weighted, directional insight and some fertile fodder for the tea leafers, but predictive value on a month to month basis is notoriously poor. 

 

It’s not the number itself, but the markets reaction to it that drives our subsequent allocations.

 

Summary Take:  In short, +74K was a disappointment vs. prevailing expectations and an outlier verses the balance of higher frequency labor market data. We wouldn't dismiss today's data outright, but we wouldn't materially shift our positioning on a single, outlier print.

 

With 273K people out of work due to bad weather (vs. an average of 166K over the prior 5 December’s) weather is being held out as the biggest distortive factor. With our retail and restaurant analysts (who rarely cite weather as a discrete swing factor) citing weather as a drag on traffic also, we'll assume the unusually inclement weather likely did, indeed, have some impact on construction and transports/trade employment and drag on hours worked.   

 

Strategy:  The unsurprising price response to today’s data is down dollar/down bonds as “no-taper” expectations get priced in at the margin.  We outlined how to play a breakdown in the dollar in our 1Q14 macro themes call yesterday (REPLAY) – While we'll monitor the dollar weakness closely, in regards to the more immediate term and today’s employment data specifically, we’ll take the other side of overbought/oversold moves in today’s price action.   

 

In the context of the broader labor market data, where the preponderance of evidence remains positive with ADP, initial claims, ISM mfg and ISM services all reflecting moderate, ongoing improvement,  the BLS data sits as a single negative outlier. 

 

Unless we see confirming fundamental evidence alongside a shift in risk management signals (across SPX, VIX, DXY, 10Y Treasury), we’re unlikely to pivot on our generally positive view of the domestic labor market because of today’s data in isolation – particularly given the positive revision, the weather caveat and the ongoing, significant seasonal distortion.   

 

Keith shorted BOND (etf) and long-term treasuries (TLT) in real-time alerts on this morning’s weakness in yields.

 

DECEMBER EMPLOYMENT:  AT LEAST IT'S INTERESTING - Employment Summary Table Dec 

 

DECEMBER EMPLOYMENT REVIEW:   Below we review, in detail, this morning’s employment data from the BLS, highlight some potential issues impacting the January release and take a summary look at trends in the distribution of employment. 

  • Household Survey Employment (CPS):  Employment as measured by the Household Survey increased +143K on the back of last month’s reported +958K increase.  The household survey is notabably volatile but, similar to the ADP data, is consistent with the NFP figures on a multi-month moving average basis.
  • Unemployment rate:  Declined to 6.7% from 7.0%  as total unemployed dropped -490K and total employed increased +143K
  • Labor Force Participation:  Dropped another 19bps sequentially to 62.79 from 62.98 as the total labor force dropped -347K MoM (the net of -490K unemployed plus +143K increase in employment) and civilian population increased +178K
  • Weekly Hours:  Down small to 34.4 vs. 34.5 prior (likely impacted by weather)
  • Employment by Age:  each age cohort across the 20-44 Year old demographics accelerated sequentially while employment growth for 45-64 year olds decelerated in December.
  • Government Employment: State & local gov’t employment growth holding positive for a six consecutive month while Federal payroll growth held flat at -2.8% YoY to close the year. 
  • Ave Hourly Earnings:  Earnings slowed 20bps sequentially to 1.8% YoY.   Not a growth number particularly supportive of accelerating consumption
  • Revision:  the establishment report showed a net positive two month revision of +38K with the October estimate unchanged and November revised to 241K from 203K last month, Household Survey revised to +958K from +818K last month
  • Part-time Employment:  Part-time employment dropped 89K MoM, down -1.0% YoY.  The Trend in part-time employment remains one of decline.  
  • Industry Level Notables:  Construction employment (weather impacted) was the worst, dropping 16K MoM and ending a 6mo streak of positive gains. Notably, healthcare shed jobs for only the 2nd month in the last 10 years in December

 DECEMBER EMPLOYMENT:  AT LEAST IT'S INTERESTING - Unemployment Rate 2

 

DECEMBER EMPLOYMENT:  AT LEAST IT'S INTERESTING - Weather December

 

DECEMBER EMPLOYMENT:  AT LEAST IT'S INTERESTING - Employment by Age

 

DECEMBER EMPLOYMENT:  AT LEAST IT'S INTERESTING - State   Local Gov t  Dec

 

DECEMBER EMPLOYMENT:  AT LEAST IT'S INTERESTING - U

 

 

EMPLOYMENT DISTRIBUTION: PRE-RECESSION vs. NOW 

 

Below is a quick comparative study of the distribution of employment by industry in the peri-recession period.   As can be seen, at the broader Industry level, the shifts have not been particularly outsized. 

 

The prevailing bearish narrative that the post-recession economic edifice is structurally weaker and the employment recovery has been largely illusory because we’ve only added low wage and part-time jobs seems to be overstated.   

 

Part-time employment is in retreat, Temp employment is increasing, construction and manufacturing jobs are currently seeing some positive momentum, and mining and energy employment (which generally pay comparatively higher wages) continue to gain in share, to name some positive dynamics. 

 

Yes, participation is declining (in excess of that implied by demographics) and long-term and structural unemployment will remain TREND issues, but the great, job-quality-deterioration-narrative appears somewhat fallacious.  

 

DECEMBER EMPLOYMENT:  AT LEAST IT'S INTERESTING - ED

 

DECEMBER EMPLOYMENT:  AT LEAST IT'S INTERESTING - Aggregate Earnings

 

 

POTENTIAL JANUARY IMPACTS: 

Unemployment Insurance:  The loss of EU unemployment benefits for some 1.3M individuals at the close of the year has been well advertised.  If jobless benefits aren’t renewed by congress and the bulk of those individuals move from unemployed to out of the labor force the LFPR will decline and the Unemployment Rate will benefit.  The largest impacts, should this occur, are likely to be observed over the first couple months. 

 

Annual Benchmark Revision:  the Census Bureau applies an annual population control adjustment to the Civilian Non-institutional Population alongside the January release every year.  Historically, the magnitude of the January adjustment has ranged from tens to hundreds of thousands or even millions of individuals.  An outsized revision to the January 2014 data could shift the unemployment variable dynamics from their current trend

 

DECEMBER EMPLOYMENT:  AT LEAST IT'S INTERESTING - CNP

 

Christian B. Drake

Associate

@HedgeyeUSA



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