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Rosenberg Deconstructs The Unemployment Number

Tyler Durden's picture





 

From David Rosenberg of Gluskin Sheff

U.S. EMPLOYMENT — SNOW JOB?

There were so many cross-currents in the January employment report that it is next to impossible to make book on the data. Bullish or bearish, there was something for everyone. All I can say is that the data were not as weak as the disappointing headline would suggest, but there was nothing here to suggest that the U.S. labour market is progressing at anything remotely close to resembling a normal post-recession recovery, even when benchmarked against the past two jobless recoveries in the early 1990s and again coming out of the tech wreckage a decade ago. Fed Chairman Bernanke highlighted the lack of impetus in the jobs market as a chief source of concern and there was nothing here that will help alleviate that, sad to say.

The headline nonfarm payroll report came in light at +36k, well below consensus views of 146k and whispered numbers ahead of the report that were bordering +180k. Not only that, but adjusting for our estimate of what the Bureau of Labor Statistics (BLS) birth-death model artificially added, the headline would have been -52k! (Of course, because this was such a give-and-take report, the bulls would retort that there was also +75k of upward revisions to the back data).

The Household survey also showed a more modest 117k jobs being created last month versus +297k in December (all of the gains and then some were in full-time positions — for a change!). So at face value, the labour market hardly strengthened in January despite all the anecdotal evidence to the contrary (though the level of jobless claims is still at levels that would characterize fairly tepid job market conditions).

There is no doubt that the weather exerted a major impact — wouldn’t the consensus have realized that ahead of time? It’s not new news that January was a terrible weather month and that the data would be impacted. Then again, yesterday all we heard on CNBC was how the chain store sales data were unaffected by the inclement weather, but somehow the labour market was! Go figure. Maybe instead of looking for work, people were choosing to stay warm in the malls and spend their extended unemployment insurance cheques and newly received payroll tax deductions. What an economy!

Back to the weather. First sector to gauge here would be construction and it posted a 32k decline. Then again, this area of the economy is still stuck in the mud and not all of this was due to the snow, ice, and sleet. Transportation was off 38k and this too is likely reflected by the bad weather.

In total, the BLS reported that 900k people did not make it to work at some point during the month due to the weather. This is well above the norm for January (it is typically 450k) although many of these folks would still have technically been counted on the payroll even if they missed a few days of work. It does pay to note that in the past, when the number of people not at work due to weather was this large in January, we almost always saw a February bounce back — the only time this did not happen was in the early-1980s recession:

  • January 1996: over 1.8 million people not at work due to weather and NFP dropped 19k that month (but in February there was a 434k bounce back in NFP)
  • January 1982: nearly 1.1 million not at work due to weather; January NFP was -327k (February was -6k)
  • January 1979: close to 800k not at work due to weather; January NFP was 137k (February was 243k)
  • January 1978: over 800k not at work due to weather; January NFP 187k (February was 353k)
  • January 1977: 1.1 million not at work due to weather; January NFP was 244k (February was 295k)

On average, February saw a rebound in the headline number of 260k and on a median basis, 295k. So the real picture will be painted when the February data are released — the onus will be on a hefty rebound. Absent that, it will be safe to say that what we have on our hands is still a very lacklustre labour market backdrop.

The drop in the workweek to 34.2 hours from 34.3 hours was also clearly weather related and should rebound when the February data roll out. Once again, the decline here was largely concentrated in the construction sector, which obviously would be hardest hit by the snow storms — the workweek shrank here by 2.6% which last happened in January 2007 (rest assured declines like this tend to occur this time of year).

The bulls will point to the one sector that was relatively unaffected by the weather, which was manufacturing. The conditions in this sector were quite buoyant, confirming what we saw in other indicators through the month. Factory payrolls were up 49k, the third increase in a row and even skeptics like us would have to sit up and take notice that this was the best tally since August 1998. Overtime hours on manufacturing also edged up.

The manufacturing diffusion index soared from 61.7 in December to 69.1 (it was 45.1 in October!), the highest level since the tech boom was in full gear back in January 1998. Too bad this sector today only makes up about an 11% share of the economy because it is one of the few that is really humming right now. Based on our back-of-the-envelope calculations, the diffusion index in the rest of the private sector would have declined around 5% last month.

There are still pockets of weakness across many sectors. While an M&A boom may be underway and banks are now willing to reopen the lending spigots, the financial sector shed 10k jobs in January. Government employment was down 14k, largely in the state and local segment, and this can be expected to persist and cast a cloud on the jobs landscape for some time to come. And if temp agency employment is indeed a forward-looking labour demand index, it may be worth noting that this sector let go a net 11k employees in January, the first decline since July 2010.

As we mentioned, the Household survey showed a modestly positive result though smaller than what we saw in December. But there were all sorts of bizarre gyrations in this part of the employment report, which contains all the crucial labour force ratios.

First, the labour force contracted a massive 504k and the participation rate continues to slide fully 19 months into the economic expansion, which is just an off-the-charts development. It shrunk from 64.7% in September to 64.5% in November to 64.3% in December and to 64.2% in January. The participation rate has not been this low since March 1984. So in what way can we really characterize the labour market as being anything remotely close to normal?

While the level of unemployment did take a big dive in January — down 622k — these folks seemed to have left the labour force altogether rather than maintain a job search. Not only that, but the working-age population sank 185k in January. Surely the level of the working-age population and the level of the labour force would not be affected by bad weather in January.

In any event, absent the slide in the labour force last month, the unemployment rate would have gone to 9.3% as opposed to the huge decline to 9.0% from 9.6% that was actually posted. Call it an aberration or certainly something that will need validation in coming months.

Yes, the wage number was pretty solid at +0.4% MoM in January but a good part of that likely reflects the shift in the mix of employment towards higher-paying manufacturing jobs. In other words, it may be good for income — though weekly earnings lagged behind due to the weather-induced decline in the workweek — but it is not inflationary. Also, there may have been some impact from the payroll tax cut in the wage data as well. We did some digging and found that a lot of the tax preparation software companies were mentioning this was a development that would impact wage growth for a little while. Either way, this is not something for the bond market to get ‘fussed’ about and a nice buying opportunity seems to be opening up right now — shades of March-April 2010.

In the final analysis, if you were to ask us to pick just one item out of today’s jobs report that accurately depicted the current state of the labour market, given all of the inconsistent messages, it would be the Household employment data-point on a payroll- and population- adjusted basis. This aggregate showed a decent but hardly mind-blowing +153k print in January — far from the 498k surge in December but right in line with the average of the past 12 months. For the growth bulls, this is confirmation of a continued labour market recovery; for the bears, it shows that there is still nary a sign of acceleration in employment growth at a time when the economy has likely seen its best growth days behind it with the inventory cycle running its course and government austerity soon to replace the past three years of unrelenting stimulus.

 


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Fri, 02/04/2011 - 14:37 | Link to Comment TuesdayBen
TuesdayBen's picture

Unemployed?  Got a few minutes of time to waste?  Check this out:

http://www.youtube.com/watch_popup?v=OQnU1t7UzgM

Fri, 02/04/2011 - 14:52 | Link to Comment TrihumpTheInsultDog
TrihumpTheInsultDog's picture

Would it be too much for you to provide a brief preface so I don't waste my time if I'm not interested?

I did not click through.

Fri, 02/04/2011 - 15:08 | Link to Comment TuesdayBen
TuesdayBen's picture

You were invited to waste some time.

Fri, 02/04/2011 - 15:32 | Link to Comment LowProfile
LowProfile's picture

OK shootout video guns guns guns!

Fri, 02/04/2011 - 15:47 | Link to Comment Andy_Jackson_Jihad
Andy_Jackson_Jihad's picture

Its gun porn.  If you don't like it you're a FAG.

Fri, 02/04/2011 - 16:15 | Link to Comment Pure Evil
Pure Evil's picture

Too bad when the chicks are firing, they can't lift their shirts so we can see their titties jiggle.

Fri, 02/04/2011 - 15:05 | Link to Comment treasurefish
treasurefish's picture

Here's a more relevant story involving firearms:

 

Fighting breaks out between Thailand and Cambodia

http://english.aljazeera.net/news/asia/2011/02/20112454120896339.html

Fri, 02/04/2011 - 16:06 | Link to Comment Shed Boy
Shed Boy's picture

Were getting off topic, but this "firearm" story might rile a few of you up.

http://www.king5.com/news/investigators/Government-Documents-Declare-Pop...

Fri, 02/04/2011 - 17:12 | Link to Comment Panafrican Funk...
Panafrican Funktron Robot's picture

http://research.stlouisfed.org/fred2/series/EMRATIO?cid=12

The only employment chart that really matters.

Fri, 02/04/2011 - 18:22 | Link to Comment SilverRhino
SilverRhino's picture

Now that was good gun porn .... almost need a cigarette after that.  

Fri, 02/04/2011 - 19:18 | Link to Comment ConfusedIdiot
ConfusedIdiot's picture

Excellent TB. Reminded me of a time when I worked for a company that had flatbed trucks and put a seat with 4 of those .50cal thingees on them. One trigger pull sent a 4 pronged stream of tracer laced fire that was excellent for removing roadside hazards. CI

Fri, 02/04/2011 - 14:40 | Link to Comment TruthInSunshine
TruthInSunshine's picture
Santelli Slams CNBC Panelists for Spinning Jobs Report
CNBC's floor reporter criticizes 'kool-aid drinkers' for trying to find good news in the 'disappointing.'


CNBC's Rick Santelli even lashed out at some of the CNBC "Squawk Box" panel that were discussing the latest jobs report.

"[W]e have overwhelming evidence the jobs market is disappointing, and all of you are trying to look for that one half of spaghetti in a 50 lb. spaghetti bowl. This is not great data," Santelli claimed. "We know that the U6 probably gives you a better indication of the true unemployment rate …"


Fri, 02/04/2011 - 14:40 | Link to Comment thepigman
thepigman's picture

Subpoena Santelli to explain his

lying bearish view. Then BTFD

Fri, 02/04/2011 - 14:57 | Link to Comment TrihumpTheInsultDog
TrihumpTheInsultDog's picture

Hey Pigman. Keep your eye on the beans. THE BEANS! There is only one direction for this oft overlooked market. Get in now.

Fri, 02/04/2011 - 15:09 | Link to Comment Michael
Michael's picture

The used care salesman at CNBC make me Verklempt with rage.

You can't hide the real unemployment number. The true figure is always reflected in the voting booth.

As for the price of oil and gas, I can't see it sustained at high levels with so much unemployment.

17.3+ % U-6 unemployed people don't drive to work everyday, and don't tool around as much shopping for trinkets and bobble head dolls.

 

Fri, 02/04/2011 - 15:16 | Link to Comment crosey
crosey's picture

Why the hell is Santelli still working there?

Fri, 02/04/2011 - 16:02 | Link to Comment traderjoe
traderjoe's picture

Where else would he work? Any other business news that actually tells the truth? He probably gets a nice mid-6 figure salary for essentially commenting on the markets. It's nice work if you want/can get it...

Fri, 02/04/2011 - 16:06 | Link to Comment crosey
crosey's picture

Good point.  They may pay him a ton to be the foil, and try to add credibility to the rag.

Fri, 02/04/2011 - 14:39 | Link to Comment thepigman
thepigman's picture

The number of people just giving up is

astounding.

Fri, 02/04/2011 - 14:48 | Link to Comment TheMerryPrankster
TheMerryPrankster's picture

They are not giving up, they are merely disappearing from the corporate/government economy and entering the underground economy. Cannabis farming is a great home business with tremendous profit margins.

 

Gutting abandoned foreclosed homes and selling the fixtures to home remodelers on Craigslist will keep a body gainfully employed and they can sell the wiring and plumbing to the scrap dealers. When your costs of goods sold is only your own labor, you can have a tremendous margin of profit.

 

Life goes on and every dollar made in the underground economy is like $1.33 dollars in the taxed economy. No taxes, no paperwork, and you set your own hours and your own income goals. Fraud and theft is not just for the wealthy bankers.

Fri, 02/04/2011 - 15:14 | Link to Comment Cortez
Cortez's picture

Even without resorting to theft, there are legions of people on craigslist trying to buy shit low and sell it higher. 

Fri, 02/04/2011 - 15:14 | Link to Comment Herd Redirectio...
Herd Redirection Committee's picture

Hey, atleast farming is a productive skill!

Everyone knows it is the manufacturing jobs that have to come back.  Imagine what employment numbers would look like it Foxconn shut down its China factories, and Apple employed those workers in North (hell, even South) America.  Trim executive pay, and it is easily paid for!  Workers in North America will be earning more money, and may even be able to afford higher iPhone and iPad prices!

I recommend checking out the latest from the Capital Research Institute:

http://www.capitalresearchinstitute.org

Why the Fed Can't (And Won't) Raise Interest Rates

The signs of currency devaluation are all around us.  Yesterday (Feb. 4th) commodities surged.  Gold surged too. Are we really supposed to believe there is that much extra demand for commodities and gold, or their supply that restricted, that prices have been positively skyrocketing these last few months?  Of course not.  What has been happening is a devaluation in the underlying currency these commodities are priced in, the US Dollar.  Currency depreciation can be tough to spot in an environment such as the current one, as most people will look for currencies to appreciate vs other currencies.  What they are forgetting is that we live in a historic period where every nation of economic significance is involved in a no-holds-barred (currency) race to the bottom.  That means currency exchange rates may stay stable relative to each other, but not to commodities, nor to the one currency no central banker can create out of thin air, gold (and silver).

What is required to stop such runaway inflation in basic commodities?  Well, since it is being caused by devaluation of currency, the natural way to stop it would be to ‘revalue’ your currency, or in other words, make it more valuable.  In short, the USD needs to appreciate, not depreciate like it has since the crisis in 2008.  What is the easiest way to get a currency to appreciate, raising interest rates of course! So even though we clearly see conditions have arisen that naturallyare countered through an interest rate hike it is unlikely the Fed will raise rates significantly (if at all!).

Fri, 02/04/2011 - 16:50 | Link to Comment Seer
Seer's picture

You're advocating that we crank up the consumer economy again, the one that says that we can have more if we just consume more?

Hit the pedal, we've got a cliff to catch!

Fri, 02/04/2011 - 17:39 | Link to Comment Herd Redirectio...
Herd Redirection Committee's picture

I am hardly an advocate of Consumerism, I think it is much more sustainable for us to produce the goods used in North America IN North America.   What I am saying is, if we actually produce what we consume, there will be lower unemployment in North America. 

Fri, 02/04/2011 - 15:19 | Link to Comment Maos Dog
Maos Dog's picture

misspost

Fri, 02/04/2011 - 14:39 | Link to Comment mule65
mule65's picture

disappointing = QE = BUY!

Fri, 02/04/2011 - 14:43 | Link to Comment thepigman
thepigman's picture

Keep Ben's ponzi fraud alive!!!

Fri, 02/04/2011 - 14:41 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

Opps,

Harry Wanger isn't going to like this article Tyler. But Hamy might.

Fri, 02/04/2011 - 14:49 | Link to Comment redpill
redpill's picture

Don't forget Wanqer

Fri, 02/04/2011 - 15:06 | Link to Comment HarryWanger
HarryWanger's picture

For the growth bulls, this is confirmation of a continued labour market recovery...

Sounds right to me. Overall, it's an article that, even with a bearish bias, can't take this report down.

Fri, 02/04/2011 - 15:09 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

Look Tyler, Harry likes it. He likes it.

Fri, 02/04/2011 - 16:10 | Link to Comment Michael
Michael's picture

Hey CD, please post this in line picture I don't know how to do tit

http://2.bp.blogspot.com/_pClMXKikxU0/TEnoxotQhOI/AAAAAAAAAXM/s5oCLnttgA0/s1600/spaghetti-head.jpg

Fri, 02/04/2011 - 16:15 | Link to Comment TrihumpTheInsultDog
TrihumpTheInsultDog's picture

For such a big financial planner you sure do spend a lot of time trolling ZH.

Fri, 02/04/2011 - 17:10 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

Never claimed to be a "big" financial planner. I have a small business that pays just well enough to allow me lots of discretionary time. I'm not chasing the almighty dollar. Thus I have time to do as I please.

Fri, 02/04/2011 - 16:52 | Link to Comment newworldorder
newworldorder's picture

Love the picture Mikey.

Fri, 02/04/2011 - 15:10 | Link to Comment redpill
redpill's picture

Even those that imitate you have a hard time coming up with the full magnitude of your trolling absurdities

Fri, 02/04/2011 - 16:02 | Link to Comment faustian bargain
faustian bargain's picture

It's no such thing. The numbers are walking up the down escalator, but not fast enough.

Fri, 02/04/2011 - 14:42 | Link to Comment trav7777
trav7777's picture

well at least it wasn't a negative 400k print like a couple years ago.

the people dropping off the rolls should give the talking heads something to crow about in terms of aggregate UE declining

Fri, 02/04/2011 - 14:47 | Link to Comment Bam_Man
Bam_Man's picture

Boomers "retiring" (voluntarily or not) probably explains - to a certain extent - the declining participation rate. IMHO that is going to continue and is not as big a negative as some are suggesting.

Fri, 02/04/2011 - 14:50 | Link to Comment TheMerryPrankster
TheMerryPrankster's picture

"not as big a negative" = bleeding to death slowly versus an immediate death?

Fri, 02/04/2011 - 14:51 | Link to Comment redpill
redpill's picture

Many of them opt to start taking early Social Security benefits. It's adding gasoline to account deficit fire. Might marginally tighten the labor market, but at the expense of turning them into another anchor dragging down the already-heavily-leaking ship.

Fri, 02/04/2011 - 16:57 | Link to Comment Seer
Seer's picture

"Many of them opt to start taking early Social Security benefits."

And, maybe they don't have a choice.  Older, unemployed and need money.  But, yeah, "opt"...

Fri, 02/04/2011 - 14:49 | Link to Comment TimmyM
TimmyM's picture

This subject is old news already. Does anybody have the number for

Silver Anonymous?

Fri, 02/04/2011 - 17:00 | Link to Comment newworldorder
newworldorder's picture

For all the great economists and statisticians in the labor department, Ivy League,  think tanks, IRS and Social Security Depts, we cant come up with a better way to count employement/unemployment.

What a country !!!!!!!!!

Fri, 02/04/2011 - 14:54 | Link to Comment thepigman
thepigman's picture

Bottom line is these reports haven't

cut the mustard for months. Which is how one

can tell the markets  have become

completely and utterly fraudulent.

Fri, 02/04/2011 - 15:03 | Link to Comment thepigman
thepigman's picture

SPX belongs at about 800 and the long

bond should be at 2.5%. That's where

we would likely be without the

bernankes QE manipulation. Not to

worry. When China implodes, we

can blame it all on them.

Fri, 02/04/2011 - 14:56 | Link to Comment Lone Mad Minute...
Lone Mad Minute Medic's picture

Jobs are as hard to find as Oba-Mao's birth certificate

Fri, 02/04/2011 - 16:23 | Link to Comment Pure Evil
Pure Evil's picture

Umm...., I heard on good authority that if they just got off their lazy assholes they could find high wage jobs at Walmart and Burger King.

Fri, 02/04/2011 - 14:58 | Link to Comment Prof Gulliver
Prof Gulliver's picture

Sounds like Rosie is becoming slightly bullish. Might be time to look into inverse ETFs.

Then, of course, there's this: "...the huge decline to 9.0% from 9.6% that was actually posted."

Better check your numbers, Rosie.

How do you get that wrong?

 

Fri, 02/04/2011 - 15:00 | Link to Comment CrashisOptimistic
CrashisOptimistic's picture

One does wonder how "dropping off" can work.  The benefits extensions end at the end of this year?  2012 would be devastating if there are no UE benefits paid.

Fri, 02/04/2011 - 15:05 | Link to Comment DonnieD
DonnieD's picture

Long Food Stamps. Does CME have this yet?

Fri, 02/04/2011 - 15:17 | Link to Comment TheMerryPrankster
TheMerryPrankster's picture

A visual of the problem

<http>
<header> recession </header>
<body>
<iframe title="YouTube video player" width="480"

height="390"

src="http://www.youtube.com/embed/BI7iel2Ypyc"

frameborder="0" allowfullscreen></iframe>
</body>
</http

 

 

or

<a href="http://www.youtube.com/watch?v=BI7iel2Ypyc"> </a>

http://www.youtube.com/watch?v=BI7iel2Ypyc

Fri, 02/04/2011 - 15:07 | Link to Comment crosey
crosey's picture

Off subject...here's a travesty:

http://online.wsj.com/article/SB10001424052748704709304576123953940061800.html?mod=WSJ_hp_LEFTWhatsNewsCollection

MS wants more money to do the job effectively?  WTF?

 

Fri, 02/04/2011 - 15:19 | Link to Comment TruthInSunshine
TruthInSunshine's picture

Do you have any idea how much bandwith is consumed surfing HD porn all day, 4 1/2 days per week? Or how expensive it is?

Fri, 02/04/2011 - 15:13 | Link to Comment CrashisOptimistic
CrashisOptimistic's picture

The boomers retiring . . . yeah, I'm good with this in a very macro way, but I'm not good with its sudden appearance.  They don't all retire at once.  And we saw this same decrease in workforce in December, so we can't make a case for them retiring 1 Jan of some particular age year.

And the consensus would have read this ahead of time, too.

What I have not seen is any sort of rational explanation for the decrease in those looking for work all of a sudden.  Something important is not being measured.

Fri, 02/04/2011 - 15:52 | Link to Comment Andy_Jackson_Jihad
Andy_Jackson_Jihad's picture

Soyolent Green is made out of people!

Fri, 02/04/2011 - 16:10 | Link to Comment ThirdCoastSurfer
ThirdCoastSurfer's picture

Mexico Stock Market = 38,500 just off a fresh record high. 

Mexico Unemployment 4.94% -Dec 2010

Despite all the clamor about immigration, there is nothing wrong with Mexico if you are on the "right side of the political fence". 

In the US, there's nothing wrong with Retail Sales, Auto Sales, ISM, Agriculture prices, etc. 

You better hope you're on the right side of the fence here too. 

 

Fri, 02/04/2011 - 16:13 | Link to Comment HedgeFundLIVE
HedgeFundLIVE's picture

From a Duke MBA candidate perspective, yes, we are hiring.

http://www.hedgefundlive.com/blog/the-business-school-hiring-index

Fri, 02/04/2011 - 17:31 | Link to Comment Pure Evil
Pure Evil's picture

That's all well and good, but the article failed to mention the size of your graduating class. If its only 50 people, then 20% is not that great a number. If your graduating over a 1000 then 20% is not bad, but it seems only the top quintiles are being hired. What about the other shleps unable to maintain anything above a 2.8 GPA? I guess its assistant management positions at Walmart and Burger King for those losers.

Fri, 02/04/2011 - 17:41 | Link to Comment tekhneek
tekhneek's picture

didn't we add 400K people to unemployment?

Fri, 02/04/2011 - 17:46 | Link to Comment ziggy59
ziggy59's picture

plenty of snow but didnt stop the shoppers delight. guess BLS(one letter too much) didnt think of that when they blamed the weather as to why people didnt look for work. or, maybe they were shopping instead of looking for work.

Hopium duz wear off even for addicts

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