can't write about it. He works for a name firm and moonlighting is
"frowned upon". The reason for this policy is that one man's opinion may
not be the published opinion of the firm. So my friend is kept in the
dark. Sort of. His interesting thoughts on the NFP today. Also a strong
recommendation on how to play it.
A quick look at the data this morning, and an attempt to quantify the Labor Force Participation Rate:
This is one of the first KEY data above expectations in quite a while,
so it’s a good start, but 33 months after the recession started, we’re
still LOSING jobs… so take the number into context.
Overall though, the data is good – note the revisions to prior month:
Bonds should / will read into potential inflation on the MoM Hourly Earnings data at 3x expectations…
Two key factors I look at in this monthly report are Avg Weekly Hours
Worked (as a clue to direction of future hiring) and Labor Force
Participation (to make sense of the Headline UE number).
…hours worked was steady after an upward trend since late 2009 – not too
much to read into; will reserve judgment til next month…
Labor Force Participation bounced up to 64.7% from 64.6%.... though on
its own it has a negative effect on the Headline UE, it’s a good sign
overall…
To put this Labor Force Participation drop into perspective, let’s look at the raw numbers in UE Rate (all numbers SA)….
The fact of the matter is that we have more folks working this month than last:
July: 138.96mil Aug: 139.25mil Change: +290k
…but we also have more people unemployed (‘counted’ as unemployed, that is):
July: 14.60mil Aug: 14.86mil Change: +260k
…and let’s look at that in the context of the Labor Force:
July: 153.56mil Aug: 154.11mil Change: +450k
UE July: 14.6/153.56 = 9.50%
UE Aug: 14.86/154.11= 9.64%
so, obviously, jobs are “better”, but the UE is “worse” due to more participation in job searching… what to believe?
I’ve mentioned many times in the past that the UE Rate is a faulty data
point to consider in a debt deflationary cycle as the participation rate
skews the data too much. (Actually, a case could be made that it is a
contrary indicator at the turns)
What’s been happening is that while the Civilian Population has been
growing, the declining Labor Force Participation has not captured that
in the UE Rate. Both the Labor Force and the number ‘counted’ as
unemployed has leveled off to participation.
Since Aug 2009, from the BLS Report:
Civilian Population: +2.01mil
Civilian Labor Force: -316k
Number Employed: -183k
Number Unemployed: -133k
While that bottom line looks ok, it is also precisely the problem:
there exist many more people who are out of a job but have given up
looking, so they are not counted as part of the Labor Force. As a
result, it looks like we’re improving in the numbers of unemployed.
And as a result, we’ve seen headline UE in the 9.5-10% range since mid-2009:
Aug 2009: 9.6%
July 2010: 9.5%
June 2010: 9.5%
May 2010: 9.7%
April 2010: 9.9%
Aug 2009: 9.7%
That looks steady, perhaps a base to build upon, but notice that this is
exactly when Labor Force Participation Rate dropped off:
To give better perspective, let’s quickly look at what would the jobs
picture look like this month without the drop-out rate in Labor Force
Participation:
As seen in the chart above, current Labor Force Participation is at
64.7% having fallen off in the last 18months or so, from a baseline of
66.0% in 2008. Assuming that baseline held, we’d have a Labor Force of
157.145mil today (from current 154.11mil). Said differently, using this
math around 3mil people left the Labor Force in the last year (reported
BLS numbers are around 2.3mil). Using the Aug number of Total
Employment (139.25mil), we calculate that the number counted as
Unemployed would be 17.9mil today (up from the ’official’ 14.86mil).
Hypothetical Aug UE at 66% Labor Force participation: 17.9mil / 157.145mil = 11.4%
Here is that same exercise, using a hypothetical 66% Labor Force
Participation Rate, and the real BLS data for Population and Number
Employed, for the last few months and last year:
Aug 2010: 11.4%
July 2010: 11.5%
June 2010: 11.3%
May 2010: 11.1%
April 2010: 10.9%
Aug 2009: 10.5%
So the August data really was better, but adjusted for drop in Labor
Force Participation, the past year has been brutal; in stark contrast to
the Headline UE Rate. Again, I’m going to put off concluding a trend
for this month. At some point we will begin to run out of jobs to lose,
so perhaps we’re getting there… I will say a “V”-shaped recovery this
is not.
From here I’ll let you draw your own conclusions on where we’ve been and
where we’re going. While most of you know what I think, if you do
not, I’ll just say I think it’s a great day to buy long duration,
positively convex hi-grade paper. 8-15yr Agency bullets and even USTs
are particularly out of favor at the moment….
Benny's saving of the financial criminals will be a long term debt/tax/inflation anchor around the necks of the middle class for decades. @ Kayman
Looks like the strategy is to abdicate middle class status.
I have. There are ways.
Just as long as it isn't out 'backwards'.
Bid 'em high and sleep in the streets.
...let's just forget the employment headcount of hires versus fires...it does not mean anything.
What we need to really see is the net change (+ or -) in the total paid.
For example, if the number hired exceeded the number fired by 10% everyone would be happy, right?
But, what if those hired were paid 1/2 the amount of those fired. Are we still happy?
Everyone gets so worked up over this headcount number when we really need to be looking at how it translates into disposable income.
Empirically, I know plenty of folks who still have their jobs, but they had to tale 20% to 30% pay cuts. They would be counted as 0 new unemployed, but what about the disposable income lost?
Don't know how anyone could consider this anything but a wash of a report (at best) - statistically insignificant even after the massaging of the Birth/Death model. But for the pumpers and the MSM, "better then expected" is all that is needed.
sorry for the double post
Bruce,
Three things that might be useful context when looking at these numbers:
1) At this time of year in a "normal" (meaning the usual economy in the olden days prior to 2008), the temp staffing and hours and jobs and orders ordinarily go up as retail and assembly/manufacturing for the big retail season starts?
2) Chemicals are in everything. Since (97%) of all products contain chemicals produced within 6 months of their production (minus exports of chemicals) so watching weekly chemical rail traffic along with these numbers helps?
3) From the point of view of a business owner nothing is more telling than the weekly new jobless claims this time of year. Nine months into ones annual plan and forecast for demand...if jobs are still being let go at a high pace going into Christmas season...a lot of business plans expectations of demand are off?
Just some thoughts from out in the real world that might contexturalize this kind of analysis.
And Bruce, thanks for all your contributions. I enjoy them and find them well worthwhile
----------------------------------------
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Exactly Kayman, well said.
WaPo 9/2-
"Romer, chairman of President Obama's Council of Economic Advisers, was giving what was billed as her "valedictory" before she returns to teach at Berkeley, and she used the swan song to establish four points, each more unnerving than the last:
What she did have was a binder full of scary descriptions and warnings, offered with a perma-smile and singsong delivery:
Bloomberg 9/3
"
“I think it does erase that worry,” Romer said in an interview today with Carol Massar on Bloomberg Television’s “Street Smart.”
“That’s one of the reasons why today’s report is important,” she said. “Even though the job creation was not as strong as we would have liked, it shows that steady, continued private-sector job growth, and we’re just going to have to build on that.”
"Romer said she “would be honored” to be considered to succeed Janet Yellen as president of the Federal Reserve Bank of San Francisco."
More of the same!
Have a salad on the way back to Berkley - Romer you fat waste of space and air time cow
Jobs... if you actually produce something possibly useful, like, say, a piece of technology that people might want to buy (as opposed to pushing little leveraged bits of paper around the world), just go try to find one paying the same or more than you're getting for whatever you're doing right now.
Jeez -- what tortured, laborious analysis to produce such a diffident conclusion. Lemme make it easy: this picture will 'splain it to you much better than the convoluted logic of your friend-at-the-firm-whose-name-we-dare-not-mention:
http://calculatedriskimages.blogspot.com/2010/09/percent-job-losses-alig...
Well done 4shzl, my nizl. :|
Hard to create productive jobs when the nominal cost of debt is so low.
Far cheaper to reduce labor costs by firing and not hiring while the Fed and its conspirators subsidize the Wall Street Criminal class on the backs of the rest of America.
In the Capital/Labor trade-off labor doesn't have a chance.
Benny's saving of the financial criminals will be a long term debt/tax/inflation anchor around the necks of the middle class for decades.
Have a swell weekend.
Bruce,
You're the fixed income guy, so you would know better than I, but here's my thought:
"They" are pumping equities up and the dollar down, to drive down the price of UST's, so that "they" can buy them up and sell into the Fed's QEII-lite, whenever that happens.
Any possibility this is going on? (Obviously, I have no clue as to who "they" are and the mechanisms "they" are using).
Vinz Klortho
Yup - de boyz are underwriting 130bil next week why pay top dollar? Treasurys will be higher in price by next Friday - game on equities are being prettied up so that the banksters can IPO GM and maybe KKR - the Street will have a very good 4th quarter as they move the market to fit their profit agendas - there are no trends right now except the PMs and the grains.
Well sure, its a no-brainer for Ag and metals to move forward, especially since we have the spectacle of the largest gold mining company in the world being worth only a fraction of what some abortion brewed up in a Stanford dorm room is worth (Google).
Equities are dirt cheap. Its as though equities are being manipulated down so the big boys can pick them up for nothing.
How cheap?
12.9 times earnings versus 7 times earnings in 1974...
BBBut all the stock pumpers on msn say that they are at "historical" low ratios. Yea, for the last 15 years maybe, thats sure not the case when money wasnt easy.
I also tend to think the jobs picture is skewed due to the birth/death model, didnt they at the end of last year revise up jobless by about a million?
According to Shiller's method, they are about 20% overpriced. By historical 1 yr standards, stocks are on the high side of average. Underpriced, no.
Similar to a cash flow to enterprise value (which incorporates debt v. equity) I wonder what the value of stocks would be to total debt outstanding - government, muni, personal, etc. Why would that be relevant? If government and personal debt relates to deferred consumption (need to pay interest, service debt, pay principal) and also future taxation (gov debt is future taxes) - would the equity value be the same as prior periods or would the claims by debt-holders be too high? A convoluted theory poorly explained...
I and many others would benefit from the metric you used to determine that equities are dirt cheap. This would give everyone a good feel as to how to rate your assessment. Next time, ....dirt cheap because ___________.
P/E ratios (that stocks still have earnings, in a recession/depression, is marvelous!). Embedded foreign demand (all those US Treasuries held overseas gotta be paid back somehow!), or alternatively, dollar devaluation.
Wages are falling faster than prices, which is driving margin expansion. And while interest rates are low today, credit is not abundantly available, which keeps new businesses from entering the market.
Conservatively, the (stock) market should be trading at double what it is today.
I never understood why guys like you mention who work for big name firms dont just write under an alias? How hard is that? If youve got something to say and dont want to show your name just say 'Im a trader from JPM'.
Bruce, we did the full analysis last month:
Real U-3 Unemployment Rate When Adjusted For Labor Force Participation: Around 14%
Here is the result
UST's "out of favour"? What ya be smokin today??
I have a friend on the moon and he says yer full of blue cheese Bruce.
Ye can count all the unemployed angels on a pinhead ye like,
but John Williams has the last word with a single pre-1994 method number,,,
22% unemployment...
http://www.shadowstats.com/alternate_data/unemployment-charts