This page has been archived and commenting is disabled.
NFP Report - "It Sucked"
I suppose that the Non Farm Payroll report could have been worse than it was. But not much worse. Some
of the talking heads are calling the latest news a “soft patch”. Maybe
so. We shall see. My read is that the report was (more) clear evidence
that the economy is grinding down. The second half of this year is
likely to show only marginal growth. The June NFP was the tip off.
As is often the case, pictures tell the story better than words.
A recap of the NFP data. Note that there is no category that was not
under street expectations. Things are much worse in employment land than
anyone thought.
Labor force participation is now at levels not seen in a decade. A look
at this chart confirms that as of Friday it hit a new record low.
So why no jobs? Easy, we are not making as much “stuff”. Follows are
some regional indicators of economic performance. Yes, there are a few
“plusses” on the list but mostly it is flat to down. This chart and the
key underneath tells the story of the decline.
The best single gauge of manufacturing comes from the ISM. This is now
at 55. A fall below 50 would signal a contraction. Are we going to get
to that magic number? This chart suggests we might:
There are some conflicting signals in the credit market. If you believed that the Leading Indicators Index gives
a clue to the future you might get a “warm” feeling looking at the
following chart. The yield curve is now as steep as its been in a very
long time. Some economists will tell you that a steep curve is a sign of
an expanding economy. I take a different view. To me this
steepness is just a reflection 0f the fact that short-term rates are
stuck at zero because of continued Fed efforts to stimulate the economy.
I don’t see this chart as something to cheer about. To me it is
evidence that the bond market is becoming unglued.
This final chart poses an important question. It is very clear that the
correlation between stocks and bonds has broken down in the past few
months. Bonds have been (correctly) signaling a slowdown. Stocks, on the
other hand, have been oblivious to what the bond market is worrying
about. That can’t last in my opinion. Something will have to give.
Either stocks or bonds are mispricing what is going on in the summer of
2011. That, or another QE is right around the corner.
I'm in the camp that says, "the Fed’s hands are tied". There will
not be another big effort on the monetary front for the rest of the
year. The Fed has shot its wad and they have nothing left to shoot but
blanks. For me, the weak side of the equation is stocks.
We have three weeks left until 8/2 and the world blows up. The latest
NFP report might be the ticket to get a handshake deal between the
warring factions. I see a package coming that will include another big cut in FICA taxes.
The existing 2% reduction for workers will be extended for another
year. It is possible that it will be cut by another point or two. We
will also see a reduction in the rate that employers pay. They could get
a 2% break in a desperate effort to create some jobs.
It will be the ultimate joke if the biggest deficit reduction effort in
history results in an increase in the 2012 red ink by about $300 billion
due to the new cuts in payroll taxes. The joke will be on us. Minor/temporary
cuts in payroll taxes are not going to change the structural problems
the country faces. More debt (and bad faith) are not what the global
markets (and bond raters) are looking for.
Hulath concludes:
After
QE2, The Fed’s UST demand will be replaced by UST demand of market
participants who, again, and to their general surprise, find themselves
back in a deflationary, consumer deleveraging environment.
I disagree. If the big Deficit Reduction Plan of 2011 brings us a $2 trillion deficit (an increase of 300-400b versus current budget) for 2012, then all bets are off. I think bond buyers will go on strike if that is what we get.
»
- advertisements -
"Things are much worse in employment land than anyone thought."
thank you, marie antionette, for that exciting vacuous update. has the cake gone to your head?
the fica/employee tax should be reduced while tax rates should rise on the top percentile or possibly decile of income earners. capital gains should also be raised on rentier activities.
Low interest rates.
What if over the last 30 years or so, so much money has accumulated in the hands of the very rich that they have nowhere to put it but bonds.
Can they put it all in stocks? All their eggs in one basket?
Can they hold it in cash? Really?
Bonds may be the only place. Even given the dodgy credit ratings outlook around the world.
All of the money that has been created went somewhere. Sure, some just evaporated, that in stocks. But bonds tend to return your principal.
And when we talk about the "super rich" we have to include the sovereign wealth funds...
Bonds may not show the same signals they have in the past.....
There may be so much money just sitting out there that it has to be in bonds.
gh
Agreed. Maybe the bond and stock market have decoupled in part because equities markets are now simply HFT organisms.
Yes, it is rare to see a 50% whack with bonds but not hard to find in equities. Taxpayers will likely always take the hit for big bond losses. Sadly, to me "Bladerunner" IS the future.
i was looking at the auction result for the last TIPs. about 1% of the direct bid were sold, and the yield was negative. was hoping that when the debt ceiling deal is cleared, that the Fed brings a lot of supply, might be time to step in.
but two things, about NFP, its good for Obama to get a deal on raising the debt ceiling
Obama makes up the numbers
and punishing the stock market (just a little) wouldn't be bad for his image, (while he takes billions in campaign contributions from Wall St)
"i was looking at the auction result for the last TIPs. "
I've always been leery of TIPS. When the issuer also calculates the rate of inflation (which sets yield?), how can you win there? I probably just don't understand how they really work.
theres no principle value, you are guaranteed your original investment. there is a set yield rate, and a variable CPI rate. pretty simple really. that's how you go negative yield, the rate is low, and the security sells at a premium to par.if the CPI kicks in the paper can still perform. the problem with the ETF is that it tracks the current price, and like the other fellow said, timing is everything. to hedge a portfolio of physical bonds, you might buy an ETF which tracks short term inflation rates, just to cover all your bases.the short term STPZ would lead the curve, if lets say you were close to maturity. you would still capture the move. my other best idea on inflation is UNG, natural gas, at a huge discount to other fossil fuels. they mail out a schedule K every year, and if the fund is down you get a tax write off, without trading back and forth.
Its all a matter of timing on when you bought them my dear friend. 10 year tips purchased in the early 2000's are yielding about 5.5% guaranteed income.. Not bad compared to CD's and other guaranteed rates. I wouldnt touch new issues now though with the continued money printing we are likely to see. The base rate is just too low.
'Warren Buffet is right when he says we'll see better employment numbers when the housing market improves."
The old man is already senile... living in a 50-ish dream.
WHAT housing market?!?
WHO the f$@*&! will buy?
WHY would anybody buy (distressed) real estate?
No, really. Beyond buying cheap to live in, that is.
Investment? You must be kidding.
No folks... the old man Buffet has it EXACTLY 180 wrong. It's not housing which will create jobs - we already have enough housing - it's the jobs which will drive the housing.
Jobs we don't have, since we don't make anything, except aircraft and military gear. Oh... and BS money on W.Street.
the construction workers who lost their jobs are already back in Mexico, pretty sure the BLS isn't counting them
You make a good point; I'm pretty sure that since Big O had to give a speech because of how bad the report was, he's going to be telling his advisors to "do something" to save his re-election bid-- and what you're suggesting seems dead on. Where I think you're wrong is on the timing of QE3: I'm guessing October after a negative NFP print. Oh baby-- two trillion deficits and $5.29 gasoline by election day. I'm wondering about the last time a candidate lost ALL 50 states..
You make a good point; I'm pretty sure that since Big O had to give a speech because of how bad the report was, he's going to be telling his advisors to "do something" to save his re-election bid-- and what you're suggesting seems dead on. Where I think you're wrong is on the timing of QE3: I'm guessing October after a negative NFP print. Oh baby-- two trillion deficits and $5.29 gasoline by election day. I'm wondering about the last time a candidate lost ALL 50 states..
All social constructs can be changed and/or eliminated. All human oops! can be made true again.
Like your articles Bruce.
Re: So why no jobs? Easy, we are not making as much “stuff”. Follows are some regional indicators of economic performance. Yes, there are a few “plusses” on the list but mostly it is flat to down. This chart and the key underneath tells the story of the decline.
It's not so much that the US doesn't make anything anymore (we actually do). The problem is there are no jobs for average people anymore. Until people come to grips with the fact their most people are NOT above average (and their kids aren't either) then the "job solutions" will be lost in a the typical American fantasy that everybody can "be" management or be knowledge-workers and make above average wages. Everybody can't get above average returns on the 401k's, either. (In fact EVERYBODY can't be above average at anything).
Not sure what the real solution is but "the people" (meaning you, me, and everybody that's not part of TPTB) had better realize that there's got to be enough average jobs created (somehow) at average wages for the average number of people who are all basically average AND the average wage has to provide enough money for an average standard of living. It's really not much more difficult than accepting the most people in the society are average.
http://www.theatlantic.com/magazine/archive/2011/07/how-to-land-your-kid...
> Today, Wendy Mogel says, “every child is either learning-disabled, gifted, or both—there’s no curve left, no average.” When she first started doing psychological testing, in the 1980s, she would dread having to tell parents that their child had a learning disability. But now, she says, parents would prefer to believe that their child has a learning disability that explains any less-than-stellar performance, rather than have their child be perceived as simply average. “They believe that ‘average’ is bad for self-esteem.”
Imagine what happens when an entire society goes for 50 years convincing itself that its kids (and its society) is above average.
"It's not so much that the US doesn't make anything anymore (we actually do). The problem is there are no jobs for average people anymore. Until people come to grips with the fact their most people are NOT above average (and their kids aren't either) then the "job solutions" will be lost in a the typical American fantasy that everybody can "be" management or be knowledge-workers and make above average wages. Everybody can't get above average returns on the 401k's, either. (In fact EVERYBODY can't be above average at anything)."
Skip the above often-repeated mantra by the OBEY AUTHORITY crowd, it's really quite meaningless, as any former engineer, mathematician, scientist, programmer, etc., who cannot find a job due to all the offshored jobs, imported foreign scab workers, (illegal) undocumented workers, etc., etc., etc.
All those "business economists" who were predicting a 200,000 new jobs month for June, as wrong as usual, as most of them are incapable of finding their genitals, but simply "pay-for-play" whorescum (Gee, you'd thunk someone who heads up Johns Hopkins Institute for Advanced Studies could find their very own genitals, or ever make a close prediction????).
Instead, those of us predicting a poor showing for months to come (June was 18,000 with April and May downgraded by 44,000 jobs, which usually means many more downgrades to come for the last three months, etc.) make our predictions based upon the data, not what the foundations pay us to say.
Re: Skip the above often-repeated mantra by the OBEY AUTHORITY crowd, it's really quite meaningless, as any former engineer, mathematician, scientist, programmer, etc., who cannot find a job due to all the offshored jobs, imported foreign scab workers, (illegal) undocumented workers, etc., etc., etc.
Sure, not disagreeing with that. BUT, regardless, it just happens to be a fact that jobs you listed are for ABOVE average people. What about the average people who can't be "engineer, mathematician, scientist, programmer, etc". There's allot more AVERAGE people than above average people (in fact, there's simply an average number of average people - no more and no less). And, for every above average job, you've got to have an equivalent BELOW average job to balance it out (otherwise, we fall into the "everybody can be above average" trap).
When you look at pictures of what people do for "work" overseas, and see the masses of people "making stuff" these are all the AVERAGE jobs being created overseas that are being created to make people's lives better.
What's the equivalent that OUR average (AVERAGE) people are going to do here to stay middle-class. Did you ever notice that AVERAGE and middle-class mean almost the same thing? There's a reason for that.
Well,
unfortunately for PTB, the vast majority of the Averages, are the one's who will be the hottest trouble spot.
As they have no opportunities, no jobs, familial issues, almost zero funds, this will open the door for the BULK of the population to create pandemonium, with little or nothing to lose, they will turn to crime,and anyone who get's in there way will be in serious trouble.
IMHO
"Some of the talking heads are calling the latest news a “soft patch”.
....or quagmire.....you be the judge.
PM's appear to be indicating QE3 is now on the launch pad.....
And while this goes on NFP...........this was missed during WEINER GATE ,passed June 9th.( a much more ominous EO).
Think you will be able to farm your own property for yourseves and neighbors, think again.........FASCISM out of control.
http://www.youtube.com/watch?v=_juUVKKBw-k&feature=player_embedded#at=118
http://www.youtube.com/watch?v=8GAiXSrQCJE&NR=1
What it means, dear Bruce, is that people like you are going to BBQs with your white and well off Connecticut neighbors, ignoring the real unemployment scandal. Tyler should leave my comment on all weekend!
nice piece Leo, short of graphs, charts and figures, which everyone likes, but making some really important points about the quality of employment, and the 'equality' of employment. Obama has 'been' championed as a black president, (being the child of a white American and an African man). He is a black champion in the style of Sidney Poitier.
and Bruce, you don't have to be a skin head to be racist, or elitist. That's not what Leo is saying.
Odd thoughts from Leo K. What's this about?
He says "white" and "well off" in the same sentence. The suggestion is that I'm both an elitist and a racist.
I think Leo reads me and through that knows me. He knows I'm neither a racist nor an elitist. So I'm offended by this.
For the record Leo, I don't live anywhere near Ct. So you're wrong on all three counts.
You want a blog war, I'm ready. You want to throw chicken shit insults, well, I'll just make fun of you.
Krasting and Leo can't help it if they're both right. We are being reamed by the globalist capitalisti AND by the state socialists. They are in it together. It's called....Fascism. I should know.
Sorry Bruce, have a hard time taking you seriously on unemployment since the time you argued that the unemployed are lazy and deserve to have their benefits cut off.
Want to show me where I said that?
You bluffing or lying?
I call and raise either way.
Bruce,
Leo is the laughing stock of Zero Hedge... move on.
"unemployed are lazy and deserve to have their benefits cut off"
Not to take sides in you twos "open and frank discussion", but I have noticed that when the 99ers reach the end of the line they do tend to put a bit more emphases on finding employment.
Merely an observation on my part. Not meant to hurt anyone's feelings.
Maybe you two can sit down with a beer in the Whitehouse Rose Garden and have a learning moment? Worked for our President, didn't it?
Really? Seems like the statistics show that record amounts of people are leaving the workforce discouraged that they cant find meaningful work. Dont you hate it when facts get in the way of your dogmatic beliefs?
Where are all these jobs lurking at that people are "waiting" until the last minute to find?? Just curious.
Where are all these jobs lurking at that people are "waiting" until the last minute to find?? Just curious.
If the so called "99ers" are waiting until their benefits run out to find a job, it is because the job they find is going to pay a whole lot less than the one they had before.
Do you blame them for holding out and trying to find a decent paying job. Once you take a job that pays less, you have to take all jobs that pay less.
They have been living on hope, like most of the unemployed in this country. And then they have to take a job that pays the same as their unemployment benefit. Oh happy day!
gh
In my experience, reactions like his are caused by the resonance of unwanted truth. Just take it as a compliment. It really is.
I think you're both right. But in this sequence: First, Treasury prices soar, Bruce, an the equity sell-off moves rices down to the lower (and falling) Treasury yields. The final leg down in Treasury yields last year happened only after the post-QE equity meltdown. That's yet to happen this year.
Second, perhaps only a few months later, the Treasury buyers' strike could begin, but only after the fear trade subsides.
I fully agree with AE - its all about the stupid mainstream economists & their meaningless partial differential equations which are worth about zero.
Ron Paul will hopefully be our first Austrian School president.
Then he can start kicking some Keynesians out of guvmunt & let the Austrians straighten this mess out. No Fed, gold standard, 100% reserve banking, 50 state banks, ABCT, etc.
By the time the next election rolls around voters will be pleading for Ron Paul to get them out of the misery that will arrive shortly.
Simple minded and ill-informed shit Sasebo. Not Keynesian economics fault that Bush ran us from a basically balanced budget to off a cliff in 8 years with the worst presidency of the past 100 years. In good times (Clinton administration) we reduced deficit spending - Keynesian principle. Bush fought 2 expensive wars coupled with huge tax breaks and favors for off-shoring companies leading us to economic ruin and you blame Keynesian spending?? Yes I am sure the economy would have been much better now if Bush was followed by Herbert Hoover.
Gold standard was a great idea, but now that it is gone, replacing it would mean a massive deflation IMHO.
I don't know how it would pan out in the end, honestly. Maybe all that dollar contraction would be a wonderful "fresh start" or "re-birth."
Yes, a lot of the guilty would be punished, but a lot of innocents would be too.
NICE DREAM, anyway.......
it's all about the cost of labor relative to productivity, which in the US is too high.
Several years ago I set up a small recycling operation in rural Mexico. I've paid $7 a day to hard working honest people for their labor who thought they had a good job. I paid a chemical engineer $1200 a month to run the operation. He thought he'd died and gone to heaven. I've shaken hands with local politicians at public landfills where 7 year old children, along with 3 generations of family, are scavaging through trash bags, covered in the worst smelling waste you can iamge and living in tarp covered shit holes. The trash collected finds its way to China and comes home to the good ole USofA as the cheap shit we continue to buy. I lasted six months and quit.
I've seen first hand the humanitarian disaster global trade has cast. I walked away with the realization that the US will never be a manufacturing powerhouse again. We are a spoiled lot, the all of us. Cheap readily available credit, lack of consequences for poor choices and unfunded government nanny state promises have created a nation of elitists who are fully entitled to the next I gadget and this weeks garbage reality tv show.
The simpe fact is, these jobs are NEVER coming back. We have tasted a world where we dine on the backs of others and created god-like personas for those who got us there. We will continue to cry to our politicians for change, yet forget that change must first happen at our very own doorstep.
This clown, SOLnow, is such an obvious planted douchebagger.
"The jobs are never coming back." -- Ronald Reagan.
"The jobs are never coming back." -- Geo. H.W. Bush
"The jobs are never coming back." -- Bill Clinton
"The jobs are never coming back." -- Geo. Weasel Bush
"The jobs are never coming back." -- Barack Obama
Offshore the presidency, the supreme court, and congress, and that'll save us a bunch. We can just keep a recording of the douchbags' voices.
What exactly is your point? The jobs ARE coming back? That we don't willingly participate in the destruction of US jobs, at the same time taking clear advantage of global slave labor, everytime we shop at Walmart? Or maybe that our continued expansion of nanny state social welfare systems has not created millions of lazy fucks born into multi-generation welfare families who prefer living on the backs of those of us still capable of producing a living vs. actually working? Which is it? Short of giggles at your sixth grade immaturity, your reply provides nothing to the conversation.
It is clear that the Economic theories in place are outdated, just look at the unemployment report, 99.99% of professional economist were completely wrong and are all wearing their rose coloured glasses rather be realistic. The US economy is in huge trouble and China is not far behind.
Check out the latest from the Capital Research Institute (CRI): Creative Destruction – A New Economic Order www.capitalresearchinstitute.org
"Grinding to a halt" is an exaggeration (for now), but you're right that this jobs number reveals serious problems that are worse than just a "soft patch.
Huge amounts of monetary stimulus have succeeded in greatly elevating corporate borrowing (albeit mainly among companies large enough to issue bonds).
And huge amounts of fiscal stimulus have succeeded in greatly elevating corporate profits. Most Keynesians being on the left side of politics don't like to stress that fiscal stimulus acts mainly by elevating corporate profits, but that's what it does: it provides consumers with a source of income that, unlike wages or taxes, don't come out of businesses' expenses (after all most taxes comes out of wages).
Theoretically, these two effects were supposed to boost fixed investment, boosting employment. But it hasn't worked much. For a few main reasons.
The first is simply that we live in a global economy, where the effects of stimulus are not contained to the country where they are applied.
Companies are largely deploying their boosted profits and borrowing in capital investments outside the US. It's really all about competitiveness and exchange rates: With an overvalued dollar and wages that are too high relative to productivity, even huge amounts of stimulus-driven corporate borrowing and profits will only marginally boost domestic jobs.
Second, many of the capital investments that are being made domestically are aimed primarily at reducing labor costs, by essentially replacing workers with technology. This grows the economy but doesn't fix our employment deficit. Again, it's all about the cost of labor relative to productivity, which in the US is too high.
Third, the stimulus-driven borrowing and profits ends up being spent on imported goods. They leak out of company balance sheets to the wealthy through stock markets as companies increase dividends and buybacks, often funded by borrowing, and are spent on imported goods and travel.
As for the current slow-down, I'd ascribe it to two things. There was a kind of minicycle in the US as consumers seemed to get tired of recession and felt like splurging on Christmas for the first time in four years. That led to some overexcitement among producers , overinvestment and excessive inventories that now have to be bled back down. The bigger factor though is that overinvestment in low-tech, labor-intensive and resource-wasteful production in developing countries especially China is exacerbating constraints on raw materials and finally running up against constraints on the labor pool.
Palderdash. It's like Zero said. Those damn automatic teller machines.
In this upside down, alice in wonderland, federal reserve manipulated world it means rally on!!!
It is an amazing state of national affairs. As a developed nation
- we are the most obese.
- have one of the worst pre college education systems
- have the most children being born into poverty
- have the greatest separation of wealth.
- have one of the highest levels of (public+private) debt as a percent of GDP.
- etc.
I'm now of the opinion that the sooner we start rebuilding something better the sooner the next generation will be spared more pain.
Constitutional convention anyone? Time to "refresh the tree of liberty"?
If the US could properly be called a nation anymore, that might work. I dont think it is, I think we have 3 or 4 smaller and very different internal nations held together by force, and as such any agreement would be impossible.
How the south wants to live and what they want from government is radically different from what New England and the left coast want. We have reached a point where thte internal groups hate each other more then any time since the 1860's.
Might be the US, but I think its naive to see this nation as an "us" with any prayer of finding common ground in such a convention.
Good points - the South could break off and form a Federation of anti-science, anti-commons sense, low IQ rednecks with the goal of getting back to the Good ole days of a few rich landowners and lots of peasants/slaves. Ah the Good Ole days
Actually I think the south would be a little more like a muscular Switzerland, the northeast would be New France, and left coast the eastern outpost of the Peoples Republic of China. The question would be what the non coastal west wanted to do, there are certainly cultural similarities with the south.
With little but smarmy metrosexuals in the latter two areas at least it should be an easy separation if things unwind.
zeus- don't get out much do you? Have you ever left the northeast? That is one of the stupidist anti south rants I've heard in a long time. Ever notice any of your neighbors move to the south? Enough did since that's where population shifts have trended. What exactly is "anti-commons sense"?
"I see a package coming that will include another big cut in FICA taxes."
Social Security is in trouble, so lets cut the contribution level for another year.
You're right, but what a sad joke all of this is. Pelosi & the AARP so perfidiously up in arms over any "changes" to Social Security while the fund itself is being sucked dry faster than the Civil Service Pension Fund without even a hint of complaint or suggestion as to how the fund will ever make up these "withdraws".
Social Security payroll taxes are collected under authority of the Federal Insurance Contributions Act (FICA). The payroll taxes are sometimes even called "FICA taxes."
http://www.ssa.gov/mystatement/fica.htm
These rates apply to earnings up to the maximum taxable amount ($106,800 in 2011).
http://ssa-custhelp.ssa.gov/app/answers/detail/a_id/169/~/the-social-security-contribution-rate-for-2011
The 2% reduction for a couple who both make about the contribution max or beyond results in $350+ more a month. While the same couple making the national average hourly of $20 are bringing home $135.
What can we do? Buy fucking American, at least. I know it's tough to find stuff made in the US but it's out there. Look for it. When standing there staring at the shovels at Home Depot (that nice forged one you need to bury your silver under the rose bush out back) go ahead and force yourself to not buy the one made with slave labor. See how tough it is to pay a fair price to put someone back to work in the US? Just fucking do it. All we can control is ourselves. Let's start there.