pal who trades bonds for a living sent me his thoughts on the NFP
numbers. An interesting take. His thinking on the birth/death adjustment
in July is an early warning of what will come. I also like his comments
re: QE2 and a short term back up in rates. Just another view; this guy
has been good.
Quick Take: the numbers are not great. Some will want you to believe
that we are 10-12mos into a recovery – we should not be losing 125k jobs
at this stage.
Worse, Weekly Hours Worked edged down 0.1%. (This is a leading
indicator to employment, though we cannot read all too much into one
month’s data. Though if we see a tick down again next month, look out.)
The Unemployment Rate went down – great news, right? Not when it
retreats by way of Labor Force Participation loss:
“The civilian labor force participation rate fell by 0.3 percentage
point in June to 64.7 percent. The employment-population ratio, at 58.5
percent, edged down over the month.”
We actually have 301,000 less people working this month than last month
(139,420 May vs 139,119 June), but since the labor force decreased by
652,000, less were actually counted as unemployed, and that helped the
headline number:
May calculation: [14,973 Unemployed] / [154,393 Labor Force] =
9.7%
June calculation: [14,623 Unemployed] / [153,741 Labor Force] =
9.5%
That’s not improvement. It’s a faulty data point to consider: the UE
Rate is not capturing what’s going on. We should not be looking at it.
Consider that the Labor Force has flat lined over the last 3+ years.
This is due to discouraged workers, not because the population stopped
growing:
Had the Labor Force Participation rate not dropped so severely over the
last 3 years, we’d have a Labor Force around 157,500. This would equate
to a UE around 11.6%. So we have nearly 2% of UE shaved off by Labor
Force Participation alone.
The alternative measures of UE:
U-6 to 16.5% from 16.6% seasonally adjusted.
U-6 to 16.1% from 16.7% NOT seasonally adjusted.
Private Payrolls were up 83,000 though, so that’s improvement, right?
We’ll see – without the birth/death “guess” of how many new small
business were started this month, we’d have been at -64,000.
Birth/death is added every month, and then adjusted in Jan and July,
with hindsight, for ‘wrong’ guesses. Birth/death has added 728,000 jobs
since February. Next month comes the adjustment – the last adjustment
was in January, when they took away 427,000 of the previously added
jobs. We’ll find out next month if the BLS found they were too
optimistic in 1H2010.
With a Zero interest Rate Policy, Census hiring, QE and Stimulus mostly
behind us, we’re heading the wrong way. While I have been, and still
firmly am, in the deflation/lower rates camp, watch out for another
head-fake and a period of higher rates like we saw in the fall and
winter. In my opinion, should be very concerned about Bernanke/Obama
feeling backed into a corner and going “all in” with another massive
round of QE (and I mean massive). In fact, considering the election
cycle, I’d be very surprised if this does not happen. We need to take
our medicine, but what we’ll get is another dose of methadone, dragging
this out for years more….
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@ Edmon Plume
Most media pundits including those educated in the soft science of economics know nothing of what is going on around them. As long as the Ponzi scheme is operating and paying make believe dividends, hardly anyone cares. Hint excluding jewelery related items (*97% of the US/Canadian population does not own investment grade gold ) - This is the number of persons who believe this current economic system wil remain intact.
The B/D adjustment is a bad statistical phenomenon, but it is an adjustment to the not seasonally adjusted data. One must take the B/D adj. and apply the seasonal adjustment factor to get the B/D effect on seasonally adjusted data. All that being said, the B/D adjustment probably added about 20,000 to the seasonally adjusted payroll data.
I also would point out that the Census Bureau's seasonal adjustment algorithm is heavily weighted by the experience of 2009. The implication is that seasonal data are being under adjusted this year. Therefore, as seasonal hires are let go in August and September, they will have a larger (negative) effect on SA data than they should, just as they had an improperly larger (positive) effect on the SA data this spring as they were hired.
In other words, look for SA establishment data to show job losses of +100K to +200K more than they otherwise would per month in the third quarter.
"In my opinion, should be very concerned about Bernanke/Obama feeling backed into a corner and going “all in” with another massive round of QE (and I mean massive). In fact, considering the election cycle, I’d be very surprised if this does not happen."
David Rosenberg in an article form Sept 2009 also pointed out this as a risk.......the US dollar as a last resort policy lever.
http://www.zerohedge.com/article/david-rosenbergs-special-report
Or as John Mauldin put it so deftly with a twist, "What if the FED, as in the words of the American patriot John Paul Jones, has not yet begun to print"?
Skunkworks designers are probably racking serious overtime hours to get behind the scenes final edits to the looming launch of QE2........and maybe we all find out rather suddenly with something along the lines of 'We interrupt Zero Hedge programing to bring this annoncement from the President of the United States'.
Wait, wait!........ pull in all the shorts, and then hit the kill button.
The birth/death adjustment is a big lie. Small business are not thriving. The true number of private sector jobs lost (not added) in June is at -64,000.
Nice Article as usual Bruce, the observation "Weekly Hours Worked edged down 0.1%" like so many of these stats should have some measurement uncertainty attached to it as I doubt they can really measure any of these numbers very precisely. Its why only economics think economics is a science. Real science always includes the + measurement uncertainty so one can distinguish the signal from the random noise.
The only QEII you will see is one that passes the smell test. That will be a jobs stimulus with Bonuses to employers you take on and keep workers for a year, one that cuts employment "Taxes", one that hires and apprenticeships young people, one that cuts red tape for small businesses .......Change and hope you can believe in ??? well, I'm not going to sip that green liquid cause its not Methadone is its liquid soylent green - and it is made from real people.
Current situation smells worse than week old raccoon road kill
"that green liquid cause its not Methadone"
Maybe it's Vicks NyQuil instead?
Glug, glug, glug, then sleeeeeep.
Wake up to a bright new tomorrow!
Liquid SOMA
Nah. Uncle Bob was pretty stinky before the 18-wheeler creamed his ass on I-40.
No offense taken.
Theres a poster here who might get upset with the road kill analogy. It could have been a dear relative.
+lim as x->0 of x^x
Great article, Bruce. You're the Reagan of ZH (ie, Great Communicator).
In pump and dump economics, you lie like hell on the way up, and scare the shit out of them on the way down. Repeat as necessary. The key is in maintaining access to other people's capital.
You want to know what the WORST thing about the NFP report was?
It's that it was ruthlessly manipulated to the POSITIVE and this all they could muster without going to Levenworth.
Pathetic.
A couple comments on the B/D model. I'm no expert, but the birth/death model numbers reported are non-seasonal and cannot be simply added/subtracted to the seasonal headline numbers to see the net jobs number without the model. Second, as I understand it, the B/D model is seasonal - July does not bring an "adjustment" The effect of the model depends upon the month. Here is the website for the BLS numbers: http://www.bls.gov/web/empsit/cesbd.htm. You can assume that the impact will be different per month, and that July will be a month where the model will have less of an impact.
Third, one important part of the model that is never discussed is that the BLS assumes away the deaths of businesses. So, if they call a business and get no response, the business's formerly reported numbers are still kept in the model. These numbers are never reported, so we don't know their impact. Finally, shadowstats has mentioned (you can see it on the BLS website) that the B/D model has actually been amped up 2010 v. 2009, so it has been adding more jobs. This after what only can be called a very embarrassing and massive benchmark revision that took out 800,000 jobs.
I thought BB looked really uncomfortable when with Obama the other day. Not scientific, but I think QEII is coming...
Nice post Bruce. Mitchman and a few others have pointed out that the collapse of the private sector job market is one of the great untold stories in this whole mess. Part time work and underemployment are masking the numbers somewhat, but social security receipts are in a power dive. That and sales tax receipts are hard to fake.
That's a good view from Wall Street. I will give you a "Main Street" view from around here in Phoenix. Its called empty strip malls, small businesses barely hanging on, businesses closing, people barely staying in their houses which have lost 40-50%, aviation jobs outsourced, uproar over illegals, no jobs for young people, etc.
We are taking the medicine already. We are the canary in the coal mine. Come on over to see us dying.
Hmmmmmm.....
Wow.......
Sad.....
ORI
http://aadivaahan.wordpress.com
"what? Are you talking to me?, Go fetch"- Paris Hilton
"We need to take our medicine"
Speak for yourself Bruce.
My family background is from working class stock and they have already had their decade of "austerity", living on decrease wages/benefits because of globalization and immigration policies while corporates claim record profit.
your completely correct; globalization is the biggest scam of the twentieth century; it's not the "national we" that need to take any medicine; it's the Federal Gov. that needs to take the medicine; elements of the Federal Gov. made globalization and immigration policies to suit their corporate sponsors; they are guilty of treason and they are the entity that needs the medicine.
Yeah, because only Americans should live like pigs while the rest of the world is living on 2$ a day to sustain American lifestyle; am I right. Globalization was beneficial to app. 3B people; and why the hell should I care about JimBob in Arkansas who cant afford a new Chevy every 2 years but must settle for a new Chevy every 6 years.
Fuck off cretin.
I did not write this. A fellow who buys and sells bonds did. I thought I made that clear in the intro.
I believe you when you say your family has had a decade of austerity. Sorry for that. The "we" he spoke of is the national "we". You had austerity in your family. Soon it may be in the nation.
You're probably now in a better postion given that you know how to fight. Good luck and have good 4th.
bk
And the "we" are those who have not yet taken any medicine, like our friends on Wall Street and those basking in unrealistic government pensions, among others.
If I remember correctly, it's the economy about six months prior to an election that matters on election day. Anything done between about April-May and November won't make a bit of difference even if the dollars could flow into the voters' pockets before election day. The Dems are toast.
QE2 would probably cause the bond market to crater, which would force Zero and his team of half-trained clowns to back off.
"a period of higher rates like we saw in the fall and winter."
The higher rates were due to belief that the economy was in recovery.
This is no longer the majority view and investors will be concerned with perserving principle.
The risk of US default rate is overblown. Europe and Japan will fail way before the US and investors know it....
Agree - last fiat currency standing is probably the only viable strategy. we may be in deep shit, but it is shallower than the shit elsewhere.
The eye of the shitstorm, NZ.
+1
The transmission mechanism for QE to affect anything more than the increasingly disconnected financial economy is completely broken. All QE2 will do will be to goose markets made up of paper values being traded by people who are producing nothing.
Of course, we will still hear about 'your money' on the MSM news following by recitation of the irrelevant DOW numbers but it is irrelevant. It won't produce any energy, manufacture any goods, cause any innovation, heal any sick people or anything else. But it will divert capital away from these pursuits into increasing speculation, until it all comes crashing down.
It will not drag on 'for years' though. I think we are down to months at this point.
ex VRWC
While I totally agree with your premise, I think you miss the importance of said market goosing. For a great number of people, the performance of the DOW is their only barometer for the economy. We all know otherwise of course. But, that doesn't matter. For Obama and the Dems, its probably the best chance they have to retain power (however bad it actually may be).
The most important piece though is if there's enough time before the election to allow the new QE effort to work towards inflating the markets.
why doesn't the msm follow the truth? because it's too full of talking eye candy T&A teleprompter readers.
I've always wanted to sail on the QE2.
Trouble is the chaps in steerage are starting to make some ugly noise !
They're just mad because the iceberg is shrinking the size of their room.
Hot button topics are routinely shunned by MSM and only good news is discussed by government. When they start making speeches about bad news you know it's a steaming shit pile.
I am beginning to think they will ask for QE 2 as well. The reason is, if they wait for Aug/Sept the economy would have fully tanked and it will be known that QE did not work the first time, so begging the question, 'why would it this?' Right now economists are on board for it (Krugman/Stiglitz) so they have the Nobel momentum, if there is such a thing.
To add, BS and Barry are nut bags, and they will continue to be so unless we take the reins from them and institute a sound monie policy. We must take the reigns now.
they will ask for QE 2 as well
It seems to me that they are reluctant to "ask" due to the extreme political fallout that will result. Recall it took some major crisis to get TARP passed.
So they either have to move the situation into "crisis" to get the votes from Congress or more likely IMHO is just do it by decree. Bam will declare a "crisis", he will ask for BB's help and Ben will load up the helicopter and send the FRN flying about. Woo-hoo! Free money!
Congress will not vote yes before the election, maybe after the election before the new folks are seated in January and I suspect the new makeup of Congress will not be in the mood come late January, 2011.
sschu
Congress won't be shamed, er, fooled, er.... again.
EP - excellent comments.
Our media today is too busy trying to get our top General's dismissed.
Damn, ju'st when we were 'starting to 'see 'some REAL PROGRES'S after only 8 'short year's they 'start firing General's.
Recognize problem then solve problem
Hide problem....no problem to solve
Ignore and hope it goes away over time.
Just 'cause the elephant in the room is sharpening his tusks is no reason to panic!
What elephant?
Wait, listen...
Do you smell something?
This is why, there is an enduring foundation under Gold
disclaimer: by reading ZH you are biting the apple of knowledge and wisdom. The juice is dribblng on your shirt and it's gonna leave a mark.
Lotsa people agree with Cypher: "Ignorance is bliss!"
I heard a rumour that that was why humans got thrown out of the garden of Eden...
+1
This type of stuff should be front page news in every venue in the world.
I think the biggest stumbling block to our economic (and all other) wellbeing is an uninquisitive media. True, the sheeple will always wait to be spoon-fed, but what happened to the ideal in journalism of following the truth wherever it leads, reporting facts instead of opinions, and smoking out BS from on high?
They have Constitutional protection for their freedom, but protection without a mandate is meaningless. Their mandate is to preserve everyone's freedoms by dragging every lying bastard through the mud, thereby exposing the truth. Someone please tell them, if they'll listen.