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Jobs Report: Was It That Bad?
By Dian L. Chu, Economic Forecasts & Opinions
A precipitous sell-off in the stock market took place last Friday (Chart 1) as the Labor Department’s May monthly report showed that job growth was weak in the private sector. The NYSE had to invoke “Rule 48″ again, marking the fifth time this year it has used the rare rule, which is intended to help smooth the opening following volatile futures action.
So the employment report disappointed, but was it really as bad as evidenced by such a disproportionate selloff?
Market Mis-Expectation
The answer is no, it only failed relative to an incredibly optimistic benchmark set by some economists and the media, not to mention the Obama administration who mismanaged expectations.
The headline numbers for May do suggest reason for optimism — employers added 431,000 jobs and the jobless rate fell to 9.7%, from 9.9 % in April. However, the majority of focus is fixated on that almost all of the growth came from the 411,000 temporary workers hired by the Census Bureau, and the private sector created 41,000 positions, far short of the over-optimistic expectations for 150,000 to 180,000 jobs.
Hype & Over-Reaction
One needs to bear in mind that the big picture for the employment report should be based upon the following rationale: Are we better off in terms of job losses compared to a year ago, six months, three months, last month etc.? In other words, are we trending in the right direction, from 500,000 job losses each month to finally being net positive in job gains?
There is a tendency on Wall Street and the world in general to overreact to news events, and economic reports are not immune to this phenomenon. This kind of knee-jerk reaction to every micro bit of news is part and parcel of the sensationalistic news media model that has been employed to drive ratings and sell advertising space.
This often distorts the true significance of news events, and in the case of the latest jobs report, the underlying positive trend that is taking place in the employment environment.
If “Employment” Were A Stock
If one was trading this stock called ‘Employment’ and we graphed the year over year numbers on a chart it would appear quite bullish. (Chart 2)
In fact, this graphed line would be a trend trader`s dream stock to trade as we are in a marked uptrend which is steadily rising at a right angle, and will probably remain bullish, putting in higher highs and higher lows, for the next five years.
Big Picture - Trending Up
So the big picture of the employment trend needs to be the key takeaway from the latest jobs report, and not the extreme short-term reactionary view represented by Friday`s selloff in the market.
Eventually Corporations will start to feel more confident in the economic recovery to start putting those profits to work in pursuing new growth opportunities which require more risk.
And these new growth opportunities will require droves of new employees which will further reinforce the positively trending employment reports for the next five years, thus reducing another jobs figure some economists tend to focus on - the number of Americans out of work for 27 or more weeks--which remained at historical high.
Selloff = Bargains
With interest rate likely to remain zero for the rest of the year as one benefit for US investors due to another over-hyped news scenario in the European sovereign deficit scare, and speculations of stimulus 2.0, there are some real bargains in the market which will be snapped up ahead of the next earnings cycle as corporate productivity and profits are quite robust right now in the business cycle.
Overall, the labor market is trending in the positive direction. Smart investors would focus on the fact that the US economy is improving vs. three months ago, and take the recent selloff as bargain hunting opportunity, particularly in the resource sector, to enhance your portfolio.
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Stock have been in lockstep with the petroleum market, for the past six months petroleum prices have been leading stocks most of the time.
The crude price is a good 'broke-o-meter'. Crude prices go higher if credit flows into the Brent/Nymex exchanges. As the real economy continues to contract the ability to pay high prices for crude deteriorates.
The stock market is a money laundry to convert illiquid securities into cash, it doesn't do much else. Factors surrounding the dollar price of crude are shutting down the Bernanke Money Laundry. The smart money has cashed out of this market a long time ago.
As the China economy starts going broke - their Number One customer Europe is past the point of no return - oil prices will drip farther. The US dollar will become harder, carry trades will unwind, FX will flee toward dollars ... you get the idea.
"The stock market is a money laundry to convert illiquid securities into cash, it doesn't do much else. Factors surrounding the dollar price of crude are shutting down the Bernanke Money Laundry. The smart money has cashed out of this market a long time ago."
Right on point.
Next is to "bet" on tha drop.
As an aside, tha misemployment fiasco wasn't tha only thing goin on Thurs.pm and Fri.am. Tha world ain't tha USSCentric.
"Big Picture - Trending Up "
How do you figure that? With the 218K jobs "created" by the B/D model this month's job reading was a negative 100K print. We are not talking about "Opps, we missed 150K new real jobs here". We LOST over 100K jobs.
Do you recall the 930K jobs that vanished in February as a one-time BLS adjustment, That is because all of last year's B/D fiction turned out to be just that, fiction. This year's B/D numbers are the same fiction.
7 of the 9 main LEIs have rolled over in the past couple months...none of this is indicative of a positive trend for employment...
The reality of a flat employment picture...not "over reaction" is why the job's numbers tanked the market on Friday.
Fantastic points, chinaguy!
And, as a number of highly intelligent posters have previously pointed out, the recovery is mathematically impossible ---- especially given that there is presently no economy in the USA -- as that 7.4% or 7.5% which makes up the Fantasy Finance Sector, which makes up the overwhelming bulk of the GPD --- is a complete economic charade and control fraud.
At least Obama made the cover of yet another Top Rated Financial magazine...
http://www.americanthinker.com/blog/Obama%20mad-magazine-cover.jpg
+10! Hilarious!
Did you by any chance notice that 200,000+ of these private "jobs" were due to an utterly fictitious "birth/death" adjustment? This article is utterly delusional.
That's an excellent point and catch, masterinchancery.
In point of fact, there's no way they actually hired that many census workers, not this time, nor in the past!
Probably the market is looking six month forward and Friday was just one of those accidents along the way. Rather than looking at where we have been, I want to look forward. This will be the best number we see this year on a healine basis. When the census is done on 7/31 500,000 peeople will lose their job and the unemployment rate will surely go north of 10% again. By this fall many stimulus measures will fade. Look what happend in May, sales of homes down 25-30% when the tax subsidy ended.
What is going to sustain the growth in employment? I don't see it.
>Eventually Corporations will start to feel more confident in the economic recovery to start putting those profits to work in pursuing new growth opportunities which require more risk.
Folks, this is what your brain looks like sitting in front of the TV smoking Hopium. Please warn your children.
Versus expectations, twas miserable.
As absolute datum, twas miserable.
As prima facie evidence for more Neo-Keynesian (Ah, worlds of negative multiplier effects.) stimulus, a bloody nightmare.
Most census workers are gone before the end of June aren't they.
One of the analysts I follow, stated that the census workers would be gone within the next few weeks, back to the unemployed status. So if we could not NET one single job even with all the so-called census hiring, then the unemployment rate about a month from now is going back over 10% under the government standard of reporting. We all know its much higher anyway.
Peak hire end of June, slowly attrited off.
I agree, and am concerned about two other things. It appears the number of employed matters much less than hours worked and dollar per hour. U3 and even U6 can be manipulated with part time workers or on again off again temp hires.
also, the birth death model needs to go, it is too easy to extrapolate a bias.
Agree, the birth/death model adjustment made a big difference
this month with no apparent physical reality to back it up.
Let's all keep keep watching the tax inflows, shall we?
RECOVERY WATCH:
http://williambanzai7.blogspot.com/2010/06/ten-factors-validating-econom...