The Truth About Employment?

One headline reads
“Jobs news even worse than it appears”. In it, the
writer points out that virtually all of the jobs growth for May was
for the Census, and that’s temporary. And the incremental
fall in the unemployment rate – from 9.8% to 9.7% — was the
result of 1.5 million people simply dropping out of the pool of
available workers.

Also, earnings are down compared
to output.

So in sum, the employment
picture is bleak.

But that’s only one side
of the story. The very next headline reads “Job openings rise
to highest level in 16 months”.

Apparently, in April, there were
3.1 million jobs advertised, up from 2.8 million in March. All of
them were from private companies. Now, that’s below
pre-recession levels of 4.5 million advertised jobs. And right now,
there are 5 unemployed people for every advertised
opening.

But it certainly seems that
there is a lag in hiring.

The employment
rate and non-farm payrolls numbers are trailing indicators. That
is, they tell you what has happened.

Things like advertised jobs or
polls of companies that plan to hire, are leading indicators. They
give us a glimpse of what may be coming.

So while last week’s
payrolls data was decidedly underwhelming, it wasn’t a look
forward. As I said at the time, jobs growth will not be a straight
line. There will be fits and starts in a wide variety of data
measuring the economic rebound. Weakness in hiring one month could
easily give way to strength in the next month.

As investors,
we must remember to keep our focus on corporate profitability,
because that’s the ultimate driver of
valuations.

Over the course of the economic
recovery, corporate profitability has far outpaced other measures
of economic health. Corporate profits are on pace to hit a new
record this year. Cash as a percentage of assets on corporate
balance sheets is at a 60-year high. That cash is translating to
more merger and acquisition activity, dividend increases and share
buybacks.

I’ve pointed out IBM
(NYSE:IBM) as a poster child for corporate health before. The
company has set aside billions for acquisitions, is engaged in a
share buyback program, and has stated that its goal is to nearly
double earnings per share by 2015. IBM’s valuation remains
attractive.

Investors may be concerned about
employment and the housing market and sovereign debt problems in
Europe and even here in the U.S. But IBM will be hiring. And so
will many other companies. Corporate profitability is another
leading indicator to watch.

It appears that
the Gulf of Mexico oil leak may not flow unabated until Christmas
as some reports have suggested. BP is now reportedly recovering as
much as 11,000 barrels a day from its latest effort to cap the
leak.

This is undoubtedly good news
for everyone involved. But there are two things that it may not be
good for: oil prices and the future of drilling in the Gulf of
Mexico.

I think we all understand why
there’s a moratorium on deepwater drilling right now. It is
very unclear how long such a ban will remain in
place.

The action of oil prices over
the last month has been more difficult to get a handle on. Oil
prices fell from early May highs of $87 a barrel to current prices
in the low $70s because of concerns that slower global growth would
lead to lower demand for oil.

But at the same time, the Gulf
of Mexico spill will certainly lower production from the Gulf. The
IEA is already lowering its forecast for Gulf of Mexico production
n 2015 by 300,000 barrels a day. That’s not
insignificant.

Investors
should be aware that oil prices are seasonal. Prices tend to peak
in April and September-October.

And as this chart shows, there
is often a low during the summer months of June and
July.

I expect we are currently seeing
the lows for oil prices. And we could be only a few weeks from the
start of a new rally for oil prices that will exceed the yearly
highs at $87.

The time to get positioned for
an oil rally is now. And the stocks to own are small, domestic,
land-based exploration companies because they have no political
risk like the offshore explorations companies. To get my report on
which oil stock to buy now,
click
HERE.