What’s the Story?

by CC August 3, 2012 9:13 am • Commentary


Payrolls in the U.S. climbed more than forecast in July, boosted by a pickup in employment at automakers even as the jobless rate unexpectedly rose to a five- month high.

Payrolls increased 163,000 following a revised 64,000 rise in June that was less than initially reported, Labor Department figures showed today in Washington. The median estimate of 89 economists surveyed by Bloomberg News called for a gain of 100,000. Unemployment rose to 8.3 percent.


Total nonfarm payroll employment rose by 163,000 in July, and the unemployment rate was essentially unchanged at 8.3 percent, the U.S. Bureau of Labor Statistics reported today. Employment rose in professional and business services, food services and drinking places, and manufacturing.

Both the civilian labor force participation rate, at 63.7 percent, and the employment- population ratio, at 58.4 percent, changed little in July.

The change in total nonfarm payroll employment for May was revised from +77,000 to +87,000, and the change for June was revised from +80,000 to +64,000.

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The key reason is because the two numbers come from separate reports. The number of jobs added — the 163,000 figure — comes from a survey of business, while the unemployment rate comes from a survey of U.S. households. The two reports often move in tandem, but can move in opposite directions, especially in months such as July where there are big seasonal issues at play. This month, the household survey was telling a darker tale than the poll of establishments.

The unemployment rate is calculated based on people who are without jobs, who are available to work and who have actively sought work in the prior four weeks, and that number was up by 45,000 in July. The “actively looking for work” definition is fairly broad, including people who contacted an employer, employment agency, job center or friends; sent out resumes or filled out applications; or answered or placed ads, among other things. The rate is calculated by dividing that number by the total number of people in the labor force.

This month 150,000 people left the labor force, lowering what is known as the participation rate. That can lead to a drop in the unemployment rate if people previously unemployed leave the labor force. The drop in the labor force even as the number of unemployed grows can be worrying, and indeed there was an increase in discouraged workers in July.


Under the emerging plan for the euro zone, its temporary or permanent rescue funds would buy bonds in government debt auctions while the E.C.B. would intervene in the secondary market. That approach could help curb the sorts of borrowing costs that threaten the finances of the Spanish and Italian governments in the medium term.

But for this to happen, the governments would need to apply for aid from the euro zone rescue funds, which would then be entitled to impose conditions in exchange for support.

Such a move again raises the issue of the size of the temporary rescue fund, the European Financial Stability Facility, which is already financing bailouts for Greece, Ireland and Portugal — and is due to help Spain’s banks — and its permanent replacement, the European Stability Mechanism, which is yet to enter into force.

Despite the initial negative market sentiment, some analysts say Mr. Draghi’s announcement lays the groundwork for a potentially more coherent and sustainable solution than the instant resumption of limited bond-buying that some had craved.


Short-dated Spanish and Italian government bonds rallied sharply on Friday, sending yields ES:2YR_ESP -14.06% sharply lower. Ten-year yields ES:10YR_ESP -3.42% saw a more moderate decline. Draghi on Thursday said any bond-buying would be focused on the front end of yield curves.


Procter & Gamble [PG  63.51        ]– The consumer products giant earned $0.82 per share for its fourth quarter, five cents above estimates. But revenue was slightly light as sales and margins decline, and Procter is forecasting current quarter profits of $0.91 to $0.97 per share, below Street estimates of $1.03.

Viacom [VIAB  45.83        ] – Viacom earned $0.97 per share for the fiscal third quarter, three cents below estimates, with revenue also falling short. Viacom cited weaker ad sales for the shortfall, as well as a big drop in movie studio results.

Knight Capital [KCG  2.58        ] – The trading firm continues to fight for survival after the Wednesday software trading glitch that cost it $440 million.

Kraft Foods [KFT  38.94        ] – The Dow Jones Industrial Average component earned $0.68 per share for the second quarter, two cents above estimates, though revenue fell short. However, the food producer did leave its full-year forecasts unchanged.

American International Group [AIG  30.84        ] – AIG earned $1.06 per share for the second quarter, well above analysts’ estimates of $0.57. Revenue was also well above estimates, with the company attributing its performance to improvements at its insurance operations.

CBS [CBS  33.04  —  UNCH    ] – The media company reported a second-quarter profit of $0.65 per share, six cents above estimates, with revenue essentially in line. CBS had strong results from its cable networks, and also reported an increase in profit margins.

Activision Blizzard [ATVI  11.77        ] – Activision beat estimates by eight cents a share with its second-quarter profit of $0.20 per share, and revenue also came in well above consensus. The videogame producer also raised its 2012 outlook, helped by strong sales of its new “Diablo III” game.

LinkedIn [LNKD  93.51        ] – The company earned $0.16 per share for the second quarter, matching estimates. Revenue beat consensus, and the business social networking site also raised its full-year outlook on improved results from business and advertising services.

OpenTable [OPEN  34.15        ] – OpenTable earned $0.42 per share for the second quarter, five cents above estimates, with revenue also above consensus. The online reservations service also raised its full-year outlook, on a surge in the number of diners using OpenTable to make reservations.

Skullcandy [SKUL  13.85        ] – The company earned $0.24 per share for the second quarter, two cents above estimates. The maker of specialty headphones saw strong sales growth, both in the U.S. and overseas.

Toyota Motor [TM  77.03        ] – Toyota earned $3.7 billion dollars for the April through June quarter, after it barely made a profit during the year-ago quarter. The automaker also raised its sales target for the year to 9.76 million vehicles, which would be a record for Toyota.

SAP [SAP  62.18        ] – SAP has agreed to pay Oracle [ORCL  29.92        ] $306 million in damages in a copyright infringement case, a move that avoids a new trial. Oracle will now ask an appeals court to restore a $1.3 billion jury award.

United Continental [UAL  18.16  —  UNCH    ] – The airline has reached a new contract agreement with its pilots union, the first since the 2010 merger of United and Continental.

Beazer Homes [BZH  2.31        ] – The home builder lost $0.38 per share for its third quarter, five cents wider than analysts had been forecasting. The loss was narrower than a year ago, as Beazer saw more closings and new orders, as well as higher home prices.

McGraw-Hill Cos. [MHP  46.84        ] – The company reportedly has received several bids for its education business, according to Reuters, with the unit valued by analysts at about $3 billion. Several private-equity firms are said to be interested, including Bain Capital, Apollo Global, and Thomas H. Lee Partners.