World News!

Afghanistan

• A video purporting to show frontline Taliban fighers has been released, vowing to continue fighting NATO-led and Afghan troops.  "Even if the news of Osama bin Laden's martyrdom is true, it will not change our jihad policy..." the video states, "if it is true that he is dead, it will give us more motivation to continue our jihad."

Bahrain

• Abdulla Mohammed Habib was been sentenced by a military court to at least five years in jail for the attempted murder of policemen and an additional two years for damaging public property[1].

Japan

• Prime Minister Naoto Kan ordered the Chubu electric Power Company to suspend operation of three reactors at the Hamaoka nuclear power plant after seismologists indicated that the region is overdue for an earthquake (87% probability of a magnitude 8.0 in the next 30 years).  The plan will need to implement several safety measures - including construction of sea walls - before resuming operation.

Libya

• Mahmoud Jibril, head of the rebel Transitional National Council, has laid out a political "road map" for after they depose Muammar Gaddafi.  The plan calls for an interim government which would draw up a constitution and put it to a referendum, followed within a few months by parliamentary and presidential elections.  He also indicated that the NTC will need $2 billion to $3 billion in the next few months for military salaries, food, medicine and other basic supplies.

Pakistan

• A Predator drone has killed at least eight people in North Waziristan, increasing tensions between Islamabad and Washington.

Syria

• Syrian tanks and troops have gathered in the suburbs of Damascus, waiting for a planned "Day of Rage" protest so that they will be able to clearly identify their targets.

United States

• The Department of Homeland Security announced that there was some evidence that Osama Bin Laden and/or his associates had engaged in discussions or planning for a possible attack on a train in the US on September 11, 2011.  "We have no information of any imminent terrorist threat to the US rail sector, but wanted to make our partners aware of the alleged plotting," said DHS spokesman Matthew Chandler.
• Two separate US government sources, speaking anonymously, have stated that Osama Bin Laden was not armed and was not threatening his attackers when he was shot.
• Defending the treatment of Bin Laden's corpse, President Obama sais "We took more care on this than obviously, bin Laden took when he killed 3000 people.  He didn't have much regard for how they were treated and desecrated."
• JPMorgan Chase & co has received a subpoena from the SEC over failed mortgages.

World

• A report released by the Arctic Monitoring and Assessment Programme indicates that, if the increased warming trend observed in the Arctic continues, global sea leve could rise between 0.9 meters and 1.6 meters by 2100.  This does conflict with the IPCC report from 2007 (which estimates a 18 cm to 59 cm sea level rise by 2100), and is currently founded on extrapolating 6 years of observational data forward.
• Data from Gravity Probe B indicates that Earth's mass distorts space-time around the planet in precisely the fashion predicted by Einstein's theory of general relativity.
• The United Nations Department of Economic and Social Affairs has released a report predicting that the population of the Earth will reach 10.1 billion by 2100, assuming average fertility.  The high end of the projection indicates we could hit 10.6 billion by 2050 and 15.8 billion by 2100.
• Climate shifts over the past three decades have been linked to a 5.5% decline in global wheat production, according to a study published in the online edition of the journal Science.

[1]  Damaging public property?  The article doesn't really say.  I suspect it's something like "Hey!  My baton is damaged after tying Mr. Habib to a chair and beating him for three hours.  We can charge him!"

Employment Situation

We've been building up to this all week, and now it's finally here!  The Employment Situation report!  Yaaaay!

 

If you recall, last month's report was pretty good.  For February, we had a 216,000 increase in nonfarm payroll employment (beating expectations), an unemployment rate of 8.8% (which beat expectations), and no change in average workweek or average hourly earnings.  There were 13.5 million people out of work (6.1 million of which are long-term unemployed), 8.4 million involuntarily part-time workers, and 2.4 million marginally attached individuals (all of which combines to give an effective unemployment rate of 14.4%).

 

The Econoday-surveyed analysts are not quite as optimistic for April.  They're calling for 185,000 new nonfarm jobs, an unemployment rate of 8.8%, a 0.2% increase in average hourly earnings, and an average workweek of 34.3 hours.

 

We now turn to the Bureau of Labor Statistics for The Employment Situation -- April 2011, which presets with a bit of a mixed bag.  Nonfarm payroll employment has crushed expectations, coming in at an increase of 244,000.  Yay!  On the other hand, the unemployment rate increased to 9.0%, with 13.7 million people unemployed and looking for work (up about 200,000).  Boo!  The average workweek remained steady at 34.3 hours, and average hourly earnings increased by 0.1% to $22.95/hour.

 

The number of long-term unemployed declined by 283,000 to 5.5 million, meaning they now make up 43.4% of the unemployed.  Individuals employed part time for economic reasons increased to 8.6 million (up about 200,000), and the marginally attached individuals increased to 2.5 million (up about 100,000)..  That puts the effective unemployment rate at 16.29%.

Commissioner's Statement on the Employment Situation News Release

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The latest Commissioner's Statement on the Employment Situation (http://www.bls.gov/news.release/pdf/jec.pdf) was issued today by the Bureau of Labor Statistics. The text is below.
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Advance copies of this statement are made available to the press under lock-up conditions with the explicit understanding that the data are embargoed until 8:30 a.m. Eastern Daylight Time.

Statement of

Keith Hall
Commissioner
Bureau of Labor Statistics

before the
Joint Economic Committee
UNITED STATES CONGRESS
Friday, May 6, 2011

Mr. Chairman and Members of the Committee:

Thank you for the opportunity to discuss the employment and unemployment data we released this morning.

Nonfarm payroll employment increased by 244,000 in April, and the unemployment rate edged up to 9.0 percent. Over the last 3 months, payroll employment has risen by an average of 233,000 compared with an average of 104,000 in the prior 3 months. In April, employment increased in several service-providing industries, manufacturing, and mining.

Retail trade added 57,000 jobs in April. This increase followed 2 months in which retail employment changed little. Over the month, job gains occurred in electronics and appliance stores, building and garden supply stores, and automobile dealerships. An employment increase in general merchandise stores (+27,000) offset a decline of similar size in March.

Employment in professional and business services rose by 51,000 in April. Since a low point in September 2009, employment in this industry has increased by 745,000. Several component industries continued to add jobs in April, including management and technical consulting services and computer systems design services. Employment in temporary help services was essentially unchanged in April.

Employment in leisure and hospitality grew by 46,000 over the month and by 151,000 in the last 3 months. Food services and drinking places added 27,000 jobs in April and has accounted for nearly two-thirds of the gain in leisure and hospitality since January.

Health care employment continued to increase in April (+37,000). Job growth occurred in ambulatory health care and in hospitals.

In the goods-producing sector, manufacturing employment rose by 29,000 in April. Since December 2009, manufacturing has added a quarter of a million jobs. Durable-goods manufacturing has been the source of this growth. Over the month, job gains continued in machinery, primary metals, and computer and electronic products.

Employment in mining increased by 11,000 in April, following a gain of similar magnitude in March. Most of the growth occurred in support activities for mining. Since a recent low point in October 2009, mining employment has risen by 107,000. Elsewhere in the goods-producing sector, construction employment was about unchanged over the month. It has shown little net movement since early 2010, after falling sharply during the prior 3 years.

Employment in state government and local government continued to trend down in April. Both have been losing jobs since the second half of 2008.

Average hourly earnings of all employees on private nonfarm payrolls increased by 3 cents in April to $22.95. Over the past 12 months, average hourly earnings have risen by 1.9 percent. From March 2010 to March 2011, the Consumer Price Index for All Urban Consumers (CPI-U) rose by 2.7 percent.

Turning now to measures from the survey of households, the jobless rate edged up from 8.8 to 9.0 percent in April. However, the rate was 0.8 percentage point lower than in November of last year. In April, there were 13.7 million unemployed persons, little changed from the prior month. The number of people unemployed for less than 5 weeks increased by 242,000 in April. The number jobless for 27 weeks and over declined by 283,000 to 5.8 million.

Other household indicators showed little or no change over the month. The labor force participation rate has been 64.2 percent since January. The employment-population ratio was little changed at 58.4 percent in April. Despite increases in household survey employment since late 2009, the ratio has shown little movement. Among the employed, the number of individuals working part time who preferred full-time work was little changed at 8.6 million.

In summary, nonfarm payroll employment rose by 244,000 in April, and the unemployment rate edged up to 9.0 percent.

My colleagues and I now would be glad to answer your questions.

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World News Special Edition: Oil and Gold and Silver

By special request, let's have a look at what's going on with commodities.  And what is going on with commodities, you ask?  Well, according to Bloomberg, Brent Crude Futures dropped 9.4%, WTI Crude Futures dropped 9.39%, the gold 100 oz futures dropped 2.86%, and the silver futures dropped 11.61%.

 

Just about every other commodity was down as well.  Canola, cocoa, corn, rice, copper, cattle, you name it.  The only one that didn't drop was lean hogs, which was up 0.38%.[1]

 

If actual metal prices are more your thing, Kitco is showing gold down 3.02% and silver down 12.92% (as of 15:11 Eastern)

 

So, what happened?  We'll turn to Reuters first for some ideas.  In Oil plummets 8 percent as commodities battered, the article quotes Chris Jarvis, senior analyst for Caprock Risk Management, for some theories.  "Crude oil is selling off sharply for two primary reasons:  QE2 is coming to an end in June and without a QE3 behind it, it will take liquidity out of the market, hurting risky asset classes such as commodities....  With Osama bin Laden dead, the market is adjusting the geopolitical risk premium down accordingly.  Given this, speculative money is being taken off the table."

 

Silver took a beating  because the Chicago Mercantile Exchange Group is raising margin requirements for the 5000-ounce COMEX silver futures, according to Silver deepens dive to 5-week low, gold slips.  The margin requirement was $11,745 per contract.  Starting May 9, it will go to $21,600 per contract.

 

If you don't follow commodities much (and I don't), that's comparable to taking the house requirement for a stock from 30% to 55%.

 

Michael Shaoul, chairman of Marketfield Asset management, chalks it up to panic in Commodities Sink Most Since 2009 as Stocks Fall.  "You have those super crowded trades.  Now you're in liquidation mode.  There's nothing to do with weak US economic data.  It's not a global financial crisis.  It's  a classic liquidation move in a crowded trade."

 

One final piece of the puzzle:  the dollar was up against the euro, the British pound, the yen, and the Australian dollar.  Since commodities are traded in dollars, a strengthening dollar will help push commodity prices down.

 

This probably isn't an exhaustive list, of course.  But it's some data to work with.

 

[1]  Now I'm kind of hoping to be reading about a "pork bubble" in a few months.

World News

Australia

• Claude Choules, the last known World War One combat veteran, died in his sleep last night.  He was 110.

European Union

• The European Central Bank held rates at 1.25%.  Speculation is that rates will be increased again next month.

Japan

• Workers have entered the Fukushima nuclear plant for the first time since March 11, installing ventilation systems in the No. 1 reactor to filter radioactive material from the air.  The 12 engineers will enter the building in groups of four for 10 minute shifts.

Libya

• The White House is looking to get US law changed to allow it to access frozen Libyan assets to"make those funds available to help the Libyan people".  It is unclear if the financial help would be humanitarian, or if it would go to the rebels.

Mexico

• Efforts continue to locate survivors of Tuesday's coal mine explosion, but only five bodies have been recovered so far.

Pakistan

• Pakistani security officials are disputing the official US version of the death of Osama Bin Laden.  "The people inside the house were unarmed.  There was no resistance," stated one of the Pakistani investigators.  They have not yet released their evidence.
• The Pakistani government is warning that any country that tries to raid its territory the way US forces did to kill Osama Bin Laden will face consequences from the Pakistani military.

Portugal

• Finance Minister Fernando Teixeira dos Santos said that the austerity measures required for the bailout deal will put the nation into a recession, causing the economy to shrink by 2% annually for 2011 and 2012.

United States

• The United States reaffirmed its alliance with Pakistan, despite the whole "Osama Bin Laden was apparently living 35 miles from Islamabad for years" controversy.  "It is not always an easy relationship, you know that," said Secretary of State Clinton.  "But, on the other hand,it is a productive one for both our countries and we are going to continue to cooperate between our governments, our militaries, our law-enforcement agencies, but most importantly between the American and Pakistani people."
• Vice President Biden is meeting with a bipartisan group of Congressmen to negotiate a compromise on cutting the federal debt in the long term and raising the debt limit in the short term.  If the $14.3 trillion debt limit is not increased by August 2, this could cause a default on US obligations.
• Tomorrow marks the one year anniversary of the "flash crash".  Many market analysts seem to feel that regulatory response has been rather... mild.
• Contradicting the original report and possibly supporting the Pakistani security officials, US officials are now stating that four of the five people shot to death when Bin Laden was killed were unarmed and never fired a shot.  The Pentagon does still say that the Seal team came under fire, though.
• Sarah Shourd, one of the hikers who was held in prison in Iran on charges of espionage and who was released on bail, stated today that she will not be returning to Iran to stand trial.  "There is a part of me that would like to go back and stand by Shane and Josh at this most difficult time," she said.  "But really I'm afraid it would be too traumatic for me to go back after what I've been through in Iran."  The Iranian court has not yet responded to her refusal to return.

First Time Jobless Claims

The Christmas-like anticipation of tomorrow's Employment Situation report continues, fueled by First Time Jobless Claims.

 

Last week, as you no doubt recall, the jobless claims news was full of crushing despair. Initial claims for the week ending 4/23 were reported at an expectations-missing 429,000, with unadjusted claims coming in at 385,622.  The advance number for seasonally adjusted insured unemployment comes in at 3,641,000, and the total number of people claiming benefits in all programs came in at 8,187,232.

 

For the week ending 4/30, the Econoday-surveyed analysts are going to try for another round of optimism.  They're calling for "only" 410,000 new claims (although the consensus range calls for anywhere from 400k to 450k).  And how did we do?  Let's look at the report.

 

Turning to the US Department of Labor's Unemployment Insurance Weekly Claims Report we see that....

 

....that...

 

...wow.

 

Before I reveal the numbers, let me just say that the information presented is fairly graphic.  Small children and sensitive individuals should probably go on to another metric now.

 

Ready?

 

The initial claims for the week ending 4/23 were revised upwards to 431,000.  For the week ending 4/30, the initial claims figure comes in at 474,000.  Yes, that is correct.  We missed expectations by 64,000.  The unadjusted initial claims come in at 412,873 (up 27,251 from last week), and the total number of people claiming benefits in all programs was 8,014,919 (a decrease of 171,547 from the prior week[1]).

 

So, yeah.  Ouch.

 

In honor of the employment situation report tomorrow, let's step back and have a look at April.  Here's the raw data:

 

Week ending	Adjusted Initial Claims	Unadjusted Initial Claims	Total Number Claiming Benefits
4/30	474,000	412,873	8,041,919
4/23	431,000	385,622	8,187,232
4/16	404,000	380,668	8,229,810
4/9	416,000	443,503	8,517,545

 

For the month, the total number of seasonally adjusted initial claims was 1,725,000 and the total number of unadjusted initial claims was 1,622,666.  During the month, the total number of people claiming benefits in all programs shrank from 8,517,545 to 8,041,919, a decrease of 475,626.  That "total number of people claiming benefits in all programs" category is unadjusted numbers, so we'll be working with the unadjusted initial claims figures for the rest of this.

 

At the start of the month, there were 8,517,545 people claiming benefits in all programs.  Over the course of the month, an additional 1,179,163 people started claiming benefits (we're assuming that the unadjusted initial claims for 4/9 are already factored in to the 4/9 total number).  As a result, if nothing else changed, that would put the total number of people claiming benefits in all programs at 9,696,708 in the week ending 4/30.  Since the actual number of persons claiming benefits in all programs is only 8,041,919, that means that 1,654,789 people stopped claiming benefits.

 

Now,in a teaser for tomorrow, the Econoday-surveyed analysts are expecting to see 185,000 new jobs added to the economy in April.  Assuming that figure is correct, that means that a maximum of 15.7% of the people who stopped claiming unemployment benefits in April did so because they returned to work[2].  The rest?  Well, there are a variety of reasons why they may not be claiming unemployment - returning to school, leaving the country to look for work elsewhere, death, and so on - but the most common reason is probably "exhausting benefits".

 

So, as you can see, there is a reason why the Fed remains concerned about the employment situation.

 

[1]  If you recall the calculations from last week, we estimated that an average week adds roughly 50,000 new jobs.  Using that figure again - and tomorrow will allow us to refine these calculations - only 29% of that decline can be attributed to employment.  That means that roughly 121,000 people ran out of benefits.

[2]  A maximum?  Yes.  Not all new jobs are claimed by people who were drawing unemployment benefits.  They can also be claimed by people entering the work force for the first time (such as immigrants and young adults) or by people returning to the work force who were not drawing unemployment benefits (such as retired people, stay at home parents returning to work, and people who had exhausted their benefits).  The 15.7% figure assumes that every one of those anticipated 185,000 new jobs were claimed by someone who had been drawing unemployment benefits.

FAO Food Price Index

This particular report, which is not even noticed by the average Wall Street analyst, is released each month by the Food and Agriculture Organization of the United Nations.  In it, the FAO looks at monthly average changes in overall food prices and in the prices of cereals, oils and fats, sugar, dairy, and meat.

 

Overall, the FAO Food Price Index was virtually unchanged in April.  The Cereal Price Index was up 5.5% (on bad weather and planting delays), the Oils/Fats Index was virtually unchanged, the Sugar Price Index fell 7%, the Dairy Price Index fell 2.4%, and the Meat Price Index stayed level.