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Hi and thank you for joining us for Russell Market Week in Review for the week ending
October 5, 2012. I'm Mark Soupiset, and I'm joined today by Erik Ristuben. Erik, good
morning.
Good morning, Mark.
Well, the jobs number came out and the big news - the unemployment rate. Talk about that.
Well, it dropped below 8%, it went to 7.8%. The jobs number is a good number, I think
some are suggesting maybe too good
Yes, Jack Welch had an interesting quote today...
We’ll talk...I don't know about that but we can talk about the mechanics of what's
in the number. What you saw was a jobs number, a payroll number of 114,000 jobs, which was
a little more than we expected but pretty much in the ballpark, we were at 100,000-110,000,
so really what we thought. Now that’s not enough right to drop the unemployment rate
from 8.1% to 7.8%.
So how’d we get there?
How did we get there? Well, employment as a whole has two components in terms of measuring
by the Labor Department. The first is the payroll, which is the one that gets all the
headlines. One reason is it’s a lot more substantial; people have more confidence in
that number because they're actually in payroll. But as you know, not everybody in America
is on a payroll system, so the other way they actually measure employment is through something
called the Household Survey. What that is meant to do is pick up total employment. So
it picks up people employed in agriculture, and also people who are self-employed. It’s
that number that was a blowout number - that number was 873,000 in September. That is an
extraordinarily high number. Now in context there were some very weak months leading into
September on that number, and that number is historically very volatile. The other thing
that happened though, which I think is important to note, is that the payroll number was actually
adjusted up, it was adjusted up for August and adjust up notably (181,000) in July which
was considerably more jobs than originally announced in July. So on balance a solid employment
number and a solid picture, which is again - 7.8% is too high, participation rate is
very low but it didn't change, so it wasn’t participation rate that drove this change.
Earlier in the week we had some decent economic numbers come out, in particular the ISM Services
number; talk about that on the heels of the manufacturing number last week.
Yes, the manufacturing number - the ISM (Institute of Supply Management) surveys manufacturers,
surveys service companies. Last week’s manufacturing number was weak, but it was expected. The
service number was good, it was better than expected and the majority of our economy is
serviced-based, so we’re seeing good numbers there.
We also saw some really good housing numbers. Housing data is coming across…you kind of
want to knock on wood when you say this…not universally positive but very solidly positive
and now for a number of months in a row. Now I think what that’s done is put in a floor
on housing prices nationally, not regionally obviously, and I think people are beginning
to understand now that their houses have stopped going down in value and in many cases actually
started moving up - modestly - don’t expect a massive increase. And that’s increased
the wealth effect and I think that’s what you're seeing in the numbers that we’ve
seen - consumer confidence and consumer sentiment - and maybe this Household Survey feeds into
that whole kind of increase in consumer confidence that we’ve seen over the last few months,
which again is generally a bullish sign for the economy.
Okay Erik. And then last question - Draghi this week came out in Europe and basically
said the Euro is not going anywhere. Of course he’s going to say that but take us behind
that...
Normally heads of central banks are known for their qualified language. People used
to talk about trying to break down Greenspan’s sentences into what he really meant.
That’s pretty unqualified...
Unqualified. Well, the Euro is irreversible, that is unqualified - I will do whatever it
takes. We stand ready to do whatever it takes. That’s very strong language and that continues
to put kind of a floor on how bad things can get in Europe or how quickly things can get
bad in Europe, and that left-tail event that we talked about, that kind of cataclysmic
event is continuing to be a low probability in the minds of the market and that’s what
allowed us to move to almost highs in the S&P 500 for the year, as well as global equities.
I think that has been psychologically a very important thing for the marketplace.
Erik we appreciate your time, thanks for being with us, and thank you for being with us on
Russell Market Week
in Review.