Morning In America, Again, The Redux

We already had a "Morning in America" column a few months ago, but after today's nonfarm payrolls report, it looks like it is time for another one. The July nonfarm payrolls report just was just released, and it smashed expectations, coming in at 117,000. Economists had expected 84,000 jobs to be added during the month. The unemployment rate came in at 9.1%, below expectations of 9.2%. What is even more important is the private sector added 154,000 jobs this month. What is incredible is that the ADP report was spot on. The July ADP report said 114,000 jobs were added in the month of July in the private sector. ADP is almost never right, especially after such a huge diversion last month. Breaking down the report, 25,900 jobs were added in retail, and most impressively, 24,000 jobs were added in the month of July in the manufacturing sector. Many are attributing this to the rebound in Japan after the devastating earthquake that happened in March. Just as important, May, and June were revised higher. A net of 56,000 jobs were added in the two prior months. June was revised up to 46,000 from 18,000. An additional 28,00 jobs were added in the month of May, when economic numbers first started to turn sour. Continued importance was average hourly earnings rose 0.4%, versus 0.2% expectations. The average hourly work week stayed constant at 34.3 hours. Perhaps the Federal Reserve and Chairmen Ben Bernanke are off the hook with QE3 with this report, perhaps not. We are still not adding enough jobs to break the unemployment rate below 9%, which is a key psychological level as we have been there for what seems like forever. This report does buy some time for the economy to strengthen even more and lets the Fed off the hook, at least for now. Warren Buffett discussed the American system back in March, when the column was first released. He said, "There is a resiliency to the American system. It does work. It sputters from time to time, it will sputter from time to time, but you don't want to get worried." We are not ready to declare victory on the jobs front by any stretch of the word, but it is a better than expected number, and after the last week, we need some optimism, even if it is fleeting. There is plenty of time for negativity, and there is a better than average chance that the pre-market gains get faded during the day, and we wind up solidly negative again. But for now, it is Morning in America, part 2, the redux. ACTION ITEMS:

Bullish:
Traders who believe that the domestic economy is getting better based off this July jobs report might want to consider the following trades:

• Go long names that are tied to U.S. expansion. Names like Union Pacific UNP, CSX CSX, General Motors GM and Apple AAPL will benefit from a strong domestic economy.

• Also consider names that will continue to benefit from the rebuilding of Japan, such as Deere DE and Caterpillar CAT.

Bearish:
Traders who believe that July's jobs report was just a blip in the road to ultimate destruction may consider alternate positions:

• Just short everything you can find. If July was a one off event, will there be anything to save the U.S. economy?
  
  

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