A Look At Tomorrow's Double Whammy Of Worsening NFP And Wholesale Prior Year Downward Labor Revisions

Tyler Durden's picture

Tomorrow will likely be a jobs-predicated bloodbath. First, we will get the NFP data, which expectations have pegged at -5K (and for some reason Private payrolls still matter, even though the census impact is now negligible) but as Goldman is likely spot on with their estimate of -50K, and validated by recent ADP data, the finally number will be big miss to consensus. More importantly, as we highlighted in today's Frontrunning, tomorrow the Labor Department will announce a million-ballpark wholesale downward revision to 2009 employment numbers (due to birth-death and other perpetual upwardly biased adjustments), confirming that the jobs situation is far more dire than anything Joe Biden could have ever imagined. As the ever-optimistic Neil Dutta from BofA stated: "That adjustment is probably overstating the
employment gains because we are in a very subdued recovery and the
likelihood is that the birth-death factor is making the data look better
than it otherwise would be
Tax records will probably show more businesses closed than initially estimated by the Labor Department, analysts said. This will certainly sour the mood, and the only saving grace will be how much of an impact the market will believe a near-certain QE2 will have on stocks (and has not been priced in yet). In the meantime, here is Goldman's latest view on why the labor picture in America is getting worse and worse.

A Slow Economy Means a Slow Labor Market (Tilton)

The September employment report will be released Friday at 8:30am.  We expect a below-consensus gain of 25,000 private sector payroll jobs and an increase in the unemployment rate to 9.7%.  A variety of labor market indicators, including this morning’s weak ADP Employment Report, look consistent with this forecast.   More simply, employment growth tends to follow GDP growth with a strong correlation and a slight lag – so weak growth data in recent months also points to job growth that is as soft or softer than that seen over the summer. We expect the Labor Department to announce a preliminary estimate of a small upward “benchmark revision” to payroll growth since March 2009.

This morning we changed our foreign exchange forecasts to reflect more broad dollar weakness stemming from the weak US growth outlook and (expected) renewal of asset purchases by the Federal Reserve.  A weaker dollar is one important channel through which asset purchases (or “quantitative easing”) could stimulate the economy, and one reason why we expect a modest reacceleration in growth over the course of 2011.  See GS Global Viewpoint 10/20, “New FX Forecasts: More Broad USD Weakness Ahead” for more details.

Last Friday we issued our preliminary forecasts for the September employment report: a drop of 50,000 payroll jobs, composed of an increase of 25,000 private sector and a decrease of 75,000 government jobs, a rise in the unemployment rate to 9.7%, and an increase in average hourly earnings by 0.1%.  Incremental information over the past three days has not changed our views.  Most leading indicators look quite weak:

1. Job advertising has stagnated.  Surveys of job advertising by the Conference Board and Monster.com show a substantial pickup in late 2009 followed by continued improvement in the first half of 2010.  But over the past two to three months they have stagnated, with the Monster survey actually showing a substantial seasonally-adjusted drop in August (this is the latest data point available for Monster, although it’s good enough for our purposes--our studies suggest job advertising leads payroll growth slightly, as one might expect).   

2. Business surveys are mixed.  The Institute for Supply Management’s manufacturing sector employment index declined from 60.4 in August to 56.5 in September, suggesting a slower rate of employment growth.  In contrast, its nonmanufacturing counterpart posted an improvement from 48.2 to 50.2 (this index has ranged between 48 and 51 since February).

3. Jobless claims are down, but largely for technical reasons.  New jobless claims averaged nearly 500,000 in the first two weeks of August but have improved somewhat since then; they averaged 461,000 in the final two weeks of the survey period.  This is probably the best piece of recent labor market news, but looking back over the year’s data, the early August figures look like an aberration; the more recent numbers are almost spot on the first-half average.  The total number of benefit recipients has also come down by nearly half a million since the August payroll survey was taken.  However, the main reason for this seems to be the increasing number of Americans who have exhausted all available benefit programs; if we add back these “exhaustees” to the number of current recipients, there has been little if any underlying improvement.

4. Consumer perceptions have become even more pessimistic.  Households’ perceptions of job availability continue to deteriorate.  In the latest Conference Board consumer confidence survey, only 3.8% of respondents characterized job availability as “plentiful”—a figure that has declined four out of the past five months—while 46.1% thought they were “hard to get.”  The differential of -42.3% is exceptionally weak by historical standards.

5.  The ADP Employment Report disappointed.  Market participants got an unpleasant surprise this morning when ADP estimated a decline of 39,000 private sector payroll jobs in September, well below consensus expectations of a 20,000 gain.  Based on current BLS and ADP estimates, the ADP report has underestimated private sector payrolls by about 50,000 per month over the last three months, and about 70,000 per month over the last six months.  If we assume this general bias persists and make an adjustment in this range, this morning’s report would be broadly consistent with our estimate of +25,000 for private sector payrolls.

A large majority of the evidence therefore points to slow employment growth in September.  More simply, real GDP growth was weak in Q2 (1.6% annualized) and does not seem to have reaccelerated since then.  Since employment growth typically follows GDP growth with a slight lag, it would be odd for payrolls to show substantial improvement in the near term.

As for the public sector, by far the most important factor this month relates to temporary Census employment – nearly all the remaining temporary workers finished their contracts by the payroll survey week (the week of September 12-18).  This represents a decline of about 78,000 Census workers from the prior month, and essentially explains the difference between our private-sector and total employment estimates.  Other factors include ongoing budget pressures forcing cutbacks at the state and local level, which have been offset to some extent in recent months by a small amount of federal non-Census hiring, and the possibility that temporary poll workers for primary elections in certain states (including New York) may have been counted in payrolls this year even though they were not in the past.   We have assumed these factors play little role on net in the public sector payroll change, so our forecast for total payrolls is -50,000.

We expect the unemployment rate to edge up to 9.7% in September.  Although the household and payroll surveys of employment can and often do move in different directions in a given month, our expectation of a decline in total payrolls in September suggests a decline in employment in the household survey (the survey used to calculate the unemployment rate) is also more likely than not.  Unless those job losers depart the labor force entirely—certainly a possibility, but seemingly less likely with the labor force participation rate already at a quarter-century low—this implies some rise in the number of unemployed.  And with unemployment at 9.64% in August, it would take only a small increase in the number of unemployed for the rate to round up to 9.7%.

The September payroll report normally features the Labor Department’s preliminary estimate of its annual “benchmark” revision to payrolls.  The benchmark is the process by which initial survey estimates of employment are “trued up” to near-complete counts of employment from state unemployment insurance records.  The complete counts are available only with a lag of about nine months—each January’s payroll report provides the updated benchmark level of employment for the prior March—hence the rationale for the more up-to-date payroll survey measure.  With three of four quarters of comprehensive data now available (April through December 2009), the Labor Department is in a position to provide a preliminary estimate for the size of this revision.  We can get a sense of how large it might be by comparing the growth of payrolls in the comprehensive count (available in the Quarterly Census of Employment and Wages or QCEW) from March-December 2009 with the growth in payrolls from the survey results over that period.  The payroll survey shows a loss of 727,000 jobs on a non-seasonally adjusted basis while the QCEW shows a loss of 588,000. That is, the QCEW implies that the payroll survey underestimated job growth by 139,000 over these nine months; if we extrapolate this to twelve months the underestimate would be 185,000.  Therefore, we expect the preliminary estimate to be an upward revision to payrolls of approximately this magnitude.  This would be a much smaller adjustment than last year (a downward revision of more than 900,000) and a relatively small one in historical terms. 

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john_connor's picture

Better than expected or same NFP report: Fed has no cover for QE 2

Worse than expected or same NFP report: It is confirmed that QE 1 is destroying real economy by increasing commodity input costs and increasing US debt burden

Either way: CARNAGE


SloSquez's picture

Yes, and why wouldn't it.  People don't understand the psychology of "Oh Shit".

BobWatNorCal's picture

And on the topic of Biden-nomics, I give Joe a LOT more credit for imagination than the author has.
"..the jobs situation is far more dire than anything Joe Biden could have ever imagined."

rocker's picture

Are we Americans really that stupid to argue who's program works and who's does not. I guess so. One side claims to favor the rich or wannabes. The other side claims to favor those who know they will never be rich and even when they do the right things gets screwed. Isn't the real question, who's screwing both sides. Hint, take a look at who gave us cheap money way back in 2001. Then look at who really got the cheap money and what they did with it. It seems that ZH has answered some of this. Who's front running the FED? Who's gaming the system and who's being hurt by it. I just know this, savers are being screwed and don't even get why. If inflation caused much grief for some. Then who gained from it. Aren't those the real crooks and swindlers.

chopper read's picture

simply put, YES.


regarding the elderly and poor, Benny and the Inkjets may as well say, "let them eat cake."


the 'stimulus' and healthcare bill are just the railroad spikes in the coffin. that's why i say, "NOBAMA!".

Vampyroteuthis infernalis's picture

You cannot print your way out of a depression!!

Minion's picture

Good point - the root cause to all this seems to be a massive misallocation of capital, to the point where the population has no means of producing what they consume.  Everything looks fine (aside from always being in the red, from a balance of payments standpoint) until the creditors stop lending.  They say hyperinflation starts with a failed bond sale.......

midtowng's picture

The market is still positive for the jobs revisions.


Joseph LaVorgna, chief U.S. economist of Deutsche Bank, said the gains in real gross domestic product over the past year, along with the job growth reported in the BLS’s separate household survey, suggest the revisions will move payrolls higher.

SheepDog-One's picture

'Real gross domestic product'? What a farce, remove the money print-fest and the USA has 0 GDP.

HarryWanger's picture

I disagree. QE2 is pretty much already in the books. Tomorrow's number will have nothing to do with whether or not we get QE2. You don't think these guys know this number already.

So BTE on the number and you could see a huge move up. Economy, theoretically, improving albeit very slowly and QE2. 

WTE and we might see an early dip followed by a rise as the spin on QE2 gets ramped up huge. The only way I see a down day on this news is for a major miss - which is doubtful. It won't be great or even good but it won't be a major miss. Just like we see in the article above.

SheepDog-One's picture

There wont be any Q/E2, all hype for hypes sake while the FED holds a pair of 2's. Q/E is priced in, and cant be delivered.

InconvenientCounterParty's picture

It seems there is a perverse psycological relationship with more monetization. When people are hanging their hopes on currency debasement as a fix for the real economy, we have truly decoupled from the real axis. As a previous post pointed out, the Fed is truly boxed in like never before. It could go a number of different ways, but for my money, the downside risk far outweighs the upside risk.

HarryWanger's picture

But isn't the Fed's goal to bring yields down so far that it forces money into other assets, i.e. equities? Isn't that the great wealth effect we always hear about? Boxed in, sort of. They just have to be careful that while forcing down yields that money does indeed cause the wealth effect they hope for. Otherwise, bad news.

john_connor's picture

Wealth Effect?  You are mistaken.  The majority of Americans buy stuff when 1) they have a source of income and confidence in that source moving forward and 2) they have access to easy credit.

Since both of these conditions have been obliterated, especially on a relative basis, they will not buy stuff.

The so called wealth effect, if anything, is marginal froth at the end of positive credit cycle and the biggest bubble in history.  That bubble has burst; it doesn't exist anymore.  Wake up Mcfly.

hedgeless_horseman's picture

Kind of you to change idiot to mistaken, John.  Seldom does a post elicit that sort of attention to pedestrian words on this forum.

hedgeless_horseman's picture

Harry is not an idiot.  (S)He has a hidden agenda, but (s)he is not an idiot.

But isn't the Fed's goal to bring yields down so far that it forces money into other assets, i.e. equities?

Nevertheless, Sarah's husband is on the right track.   Americans are not savers (understatement of the day).  There is no real money that can be forced into other assets, i.e. equities.  Much of the real money is either sitting in KSA or here in the banks' and insurance companies' investment accounts, and it sure as hell isn't going back into equities anytime soon.

If a dumbass like me understands this, then the PhDs at the Fed sure do.  Therefore, Harry, the Fed's goal must be something else other than what you state.

Quantum Nucleonics's picture

That hasn't happened.  Credit availability isn't stimulating aggregate demand.  Banks are sitting on the capital the Fed is creating, happy to earn the spread between zero and treasuries.  Low rates distort the economy, plus huge government deficits mis-allocate capital.

The best course would be to normalize rates, stabilize the US dollar, dramatically cut government spending, privatize the mortgage markets, and let the chips fall where they may.  That would produce an ugly recession, with very high unemployment, and take out most of the large banks.  But, then, finally, the markets could clear, asset prices could normalize, and you'd see a sharp, sustainable recovery.

InconvenientCounterParty's picture

BTW, the only scenario where i get killed is equities to the moon and gold/silver dropping like a stone, dollar strong. It's been a long time since I've seen that pattern.

john_connor's picture

Stocks are massively overbought, so we are going down either way.  QE 5 is baked into stocks right now.  Everyone (except Ben) knows, however, that QE is destroying the real economy and that more QE is a death knell.  The past 5 weeks has just been fun and games for the computers.

We will be down 5-10% from today's close within a week.  

TheManagement's picture

Terminology such  as "death knells" and "going down" does not help address the challenges of the current investing climate. Please use more positive, forward-thinking terminology.



Quantum Nucleonics's picture

I think Bernanke knows it isn't working, it's just that the (flawed) economic theory to which he subscibes offers no solutions to the current situation.  The drowning man will flail about on the surface for a bit before slipping below waves.

SheepDog-One's picture

You'd think either way theyre screwed, but then again we live in Bizarro world where 2 sets of terrible data may equal 'GOOD NEWS'!

bugs_'s picture

Carnage!  And thats a best case!

sysin3's picture

algobot code (as reverse-engineered by ZeroHedge some time ago) :

if news == bad then buy at market, else buy at market;

rally, bitchez !

(for the love of the Flying Spaghetti Monster, I wish that I were kidding)

Minion's picture

The AlgoBots are just automated shill bidders - real traders will take profits eventually.  How very interesting that insiders are selling 2400 times more often than they're buying......

cossack55's picture

I wish I had time to read this post, but I'm late for my first job interview in 4 months.  Wish me luck and I hope flipping burgers won't iritate my arthritus.

gwar5's picture

Good luck, hold the mayo

plocequ1's picture

I'll take a side order of fries to go with the huge Shit sandwich that we are all going to have to take a bite.

TraderTimm's picture

Looks like we'll have to supersize that for an extra trillion.

cnbcsucks's picture

Sounds like S&P up 3% tomorrow.  The worse the news, the higher the market.  It's about as perverse as it gets.


homersimpson's picture

Why did someone junk you? It's not like the market is going up on spectacular news.. After seeing the past month, I don't recall the last time the Fed or TBTF banks allowed the market to dip below 50 points on the DJI..

treemagnet's picture

QE2 not priced in yet?  Best Sept in 70 years on bullshit news and no QE baked in?!

HarryWanger's picture

Not baked in until the bozos programming the machines declare its baked in. Hell, that could be at 1200 for all we know.

Minion's picture

There is a sucker in every game.  Do you really think the public at large, now overcome with the urge to chase price, is not opposite the banksters who are ringing the cash register on their sorry ass?  :D 

Max Hunter's picture

participants got an unpleasant surprise this morning when ADP estimated a decline of 39,000 private sector payroll jobs in September,

The 39k looks like a 39.99 price tag.. Coincidence?.. I think not..  The worse part about the 99.99 gig is... it must work, or they wouldn't do it..

Lao Tzu's picture

I'm glad you're willing to go down on paper with specific predictions. I'll be checking the markets at the end of the day tomorrow.

RobotTrader's picture

Whatever the NFP is....

We know that the PigMen were already frontrunning it all day.

Massive selling volume in GLD, and huge accumulation in DZZ.

Vampyroteuthis infernalis's picture

Let the mass asset sell-off commence!

Minion's picture

Behold, the one day chartist, telling everything after it happens.  Behold. 

goldmiddelfinger's picture

ah, for the right to puke up charts

plocequ1's picture

IMF is seeking more bailout money to the tune of 7 Trillion dollars, All for the Banks. I just added to my Gold position.

Racer's picture

So tomorrow the Bureau of LiarS  says it yet again has to revise the already revised numbers to a dreadful number and the market is now supposed to believe the figures, sorry guesses that will again be revised again and again?

A market for morons and that is how the lying cheating banksters are treating anyone who believes or trades in this FRAUD

monopoly's picture

Way too many weak holders following price action up thinking it is easy to scalp a few cents near the top. Once they are all gone we can move forward. Might take a little time but nothing new here. Lets see, oh yeah, this is the 73rd top in gold since I bought a little a few years ago.

Just part of the flow. Just repeat bernanke, geithner, obama and tell me you want to sell.

SheepDog-One's picture

As long as the central banksters, Geithner, Bernanke, and Obama are running this Titanic, Im buying more gold and happy about it!

gwar5's picture


Lee Quaintance says Fed is using old methods for a new paradigm. Everything is too leveraged to respond the way it used to and QE II means they're just buying more leveraged assets (bonds), making it worse. There's too much credit, not enough liquidity and it's the pushing on a string thing.

The suggestion from some quarters, therefore, is for the Fed to buy unleveraged gold assets from the treasury books, instead of UST bonds, which would reliquify the currency and give it gold backing. The Treasury still has gold on the books for only $42 / oz  and has 261 million ounces (8200 tonnes) vaulted.


The fair value of 1 ounce of gold should be about $8250. per ounce, based on old Bretton woods math used in the past (Which is very nice) for market price discovery. If the Fed became a buyer of gold, and returned to a gold standard in the process, major problems and bigger bubbles might be avoided and gives them a way out.

(note: King world says there are "massive" calls for physical gold delivery if gold price hits $1307-1325, sets floor for price. He didn't say HOW massive were the calls for physical)


Obviously this is bullish for gold. If the Fed looks to be considering a return to gold, you now have a ballpark price target. Jim Rickards and others have also discussed this scenario so it's an option with legitimate thinkers and backers and I see it being floated more frequently


HarryWanger's picture

As I mentioned earlier, the data is far from good but it's also far from bad. What does that get us? A market stuck between 1040 and 1175. That range will probably tighten up a bit, if it hasn't already but no truly "awful" data lately. By awful I mean ISM contraction, Claims rising substantially, earnings falling off a clip. 

None of that is happening. Not good but also not bad. Just a sluggish, slow moving growth with a tiny slope upward.

SheepDog-One's picture

'Data far from bad' LOL well I suppose, as long as youre not comparing it to historical data or anything.

berated's picture

Harry, given your view above, I'm curious as to your thoughts re the Consumer Metrics Growth Index? The link is to a Doug Short post on SA. The third graph in the post really catches one's eye....