Archive - May 2014

While we expect much media coverage of the fact that as of the end of April, total jobs have risen to 138,252K or just 98,000 jobs shy of the December 2007 highs when the depression started (which means that the next jobs report will finally show a full recovery of the jobs lost in the past 6 years), another fact which will not receive nearly as much attention is that the cumulative increase in Americans who have, over the same period, dropped out of the labor force has more than "made up" for the job gains. In fact, it may come as a surprise to most, that since the peak of the depression in February 2010, when the job number dropped to 129.7 million and has been rising ever since, the average monthly number of job adds is 172K. And what about the average monthly number of people who drop out of the labor force since February 2010? 175K, or a virtually perfect mirror image.

"After a long hard winter it is good news that the employment numbers are picking up. To hit the lowest unemployment rate in five and a half years is a positive sign as we move into the summer season that should bring more construction and tourism jobs. Many American families are still struggling with high costs of housing, childcare and college and we need to continue our work to give them a fair shot." Mission Accomplished?

Yesterday it was construction spending that took the positive shine off a measly Q1 GDP print and today it is New Factory Orders. A mere 1.1% gain MoM, missing expectations of a 1.5% bounce (and down from a 1.5% rise in February) suggest anything but a post-weather bounce in the economy. This is the 4th miss in the last 5 months and missed even with a huge spike in defense spending (+21.5%). Who will be first to lower Q1 GDP final expectations today?

Taking another peek beneath the only headline that vacuum tubes and algos care about, namely the headline establishment survey print, reveals another mockery of a "recovery", because in addition to the farce that 1 million Americans were added to the "not in labor force" number, a breakdown of jobs added by age group reveals more of the same. Namely, in the one most important age group for jobs, those workers aged 25-54 which represent the bulk of the US labor force and are also the best and most productive group, the total number of jobs tumbled from 95,360K to 95,151K, a drop of 209K!

While not nearly as horrific as recent months, in which the vast majority of job additions were relegated to the worst paying sectors possible, the month of April did see a pick up across virtually all industries (except for one of the best paying fields of course, Information), however four of the top six industries that saw job pick ups were once again in the lowest paying fields: Education and Health, Retail Trade, Temp Help and Leisure and Hospitality. The two best paying fields: Financial Services and Information saw a combined 3K jobs added between them.

How can this be possible? Bond yields are at record lows and stock prices near record highs across Europe and even the ever-increasing debt-to-GDP characteristics of the perennially weak periphery are able to issue bonds willy-nilly as if nothing had ever happened. So how come 18.9 million people across Europe were unemployed in the euro area in March? Spain - actually trading at its cheapest cost of funding of all time (below 3%) - accounts for 6 million of those. As Bloomberg's Niraj Shah notes, Greece and Spain have the highest jobless rates in Europe at 26.7% and 25.3%, respectively. That contrasts with 4.9% in Austria. The overall unemployment rate was unchanged at 11.8% in March from February after the previous month’s read as youth unemployment continues to rise.

And so the BLS is back to its old data fudging, because while the Establishment Survey job number was a whopper, and the biggest monthly addition since January 2012, the Household Survey showed an actual decline of 73K jobs. What is much worse, is that the reason the unemployment rate tumbled is well-known: it was entirely due to the number of Americans dropping out of the labor force. To wit, the labor force participation rate crashed from 63.2% to 62.8%, trying for lowest since January 1978! And why did it crash so much - because the number of people not in the labor force soared to 92 million, the second highest monthly increase ever, or 988K, only 'better' than January 2012 which curiously was the one month when the establishment survey reported a 360K "increase" in jobs. 

Great news - unemployment rate is tumbling (stocks rally and bond yields rip higher). Bad news - unemployment rate is tumbling (for all sorts of technical reasons that are entirely fallacious and do not reflect reality at all - stocks dump)... Bonds - after 2 days of aggressive short-squeeze covering - are bouncing higher in yield and stocks not holding any bid (with gold down) as better-than-expected data headlines suggest the punchbowl is steadily disappearing over the horizon. The USD is surging with USDJPY pumped up to 103 (but stocks not holding it for now) Perhaps bonds will recover once they sniff below the surface...

The "not really most important jobs data ever" is out. Here are the results:

Jobs soar higher by 288K, far higher than expected 218K, and well above the 203K revised
Unemployment rate 6.3%, tumbles from 6.7% and well below expected 6.6%
Average hourly earnings M/M +0.0%, Exp. 0.2%; Average hourly earnings all employees Y/Y: 1.9%, Exp. 2.1%

Nigel Farage's UKIP has opened up a clear lead in the run up to next month’s elections for the European Parliament. According to ComRes, 38% of Britons certain to vote say that they would cast their ballot for the party, compared to 27% who would vote for Labour, 18% who would vote for the Conservatives and 8% who would vote Lib Dem. UKIP is damaging Conservative hopes as 67% of 2010 Tory voters are now saying they would vote for UKIP. However, it's not all rainbows and unicorns for the euro-skeptic party, as - somewhat expectedly - almost one third of Britons think that UKIP is a racist party; even as 48% believe UKIP has sensible policies.

• UBS 180K
• HSBC 195K
• Bank of America 215K
• JP Morgan 220K
• Goldman Sachs 220K
• Citigroup 225K
• Deutsche Bank 240K
• Barclays 250K

• Ukraine attacks rebel city, helicopter shot down (Reuters)
• Euro Unemployment Holds Near Record Amid Factory Gains (BBG)
• Yellen’s Fed Resigned to Diminished Growth Expectations (BBG)
• Junket Figure's Disappearance Shakes Macau's Gambling Industry (WSJ)
• China tried to undermine economic report showing its ascendancy (WSJ)
• Liquidity Trap Hitting AAA Bonds Has ATP CEO Sounding Alarm (BBG)
• AstraZeneca Snubs Pfizer Approach That U.K. Won’t Block (BBG)
• Missing Jet Recordings May Have Been 'Edited' (NBC)
• RBS turns corner as first-quarter profit trebles (Reuters)
• Japan household spending hits four-decade high, wages key to outlook (RTRS) while Real Incomes Drop 3.3% in March, 6th straight decline

Another day where the taken for granted overnight futures levitation is missing (despite a rather rampy USDJPY), indicates that algos are likely waiting for guidance from today's NFP data (buy if beat, buy more if miss) before committing monopoly money. The consensus for today's NFP is 218K, (up from 192K), although as Goldman notes the whisper number is as high as 240K. As DB says, the honest truth is that markets are in one giant holding pattern at the moment with volatility and conviction low. One evidence of this is the AAII weekly sentiment indicator which shows the % bullish, bearish or neutral on the US stock market for the next six months. This week the neutral indicator (40.78) is at its highest level for 9 years. No wonder volumes and volatility are low if investors are lacking a directional bias. Yesterday’s reaction to the ISM manufacturing was interesting. Though the headline number came in firmer than expected (54.9 vs 54.3 expected) and more than 1pt higher than last month’s reading of 53.7, the UST and equity reaction suggested that the data had actually surprised to the downside.

After a few days of extended verbal foreplay, it was only a matter of time before Ukraine finally snapped and resumed a military operation to regain the lost cities in the east, especially once the warmongering IMF made it explicitly clear that should Ukraine lose control of pro-Russian controlled cities the $17 billion bailout package would be lost too. Sure enough, early this morning Kiev launched a military operation to regain control of the pro-Russian separatist stronghold of Slovyansk, overrunning numerous roadblocks and surrounding the city, officials said, but meeting stiff resistance from militants who managed to shoot down at least one helicopter.

Just like everything else, it’s the chicken and the egg conundrum. Which came first?