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Still Scope for Optimism on U.S. Jobs?
Submitted by Leo Kolivakis, publisher of Pension Pulse.
The perils of predicting US monthly payrolls! To my surprise, there were no huge gains in the December payrolls to spook the bond market on Friday. The bond market remains calm, for now.
So
where did I go wrong? For one, I should have listened to my bond trader
buddy who told me he was going long ahead of report and then short. He
called me up today to remind me he was right. He told me that the
10-year bonds will trade in a range for a while and he doesn't agree
with Bill Gross who sees yields climbing above 4.50%.
He also
reminded me that there is a natural upper cap on bond yields. "Remember
what we talked about a while back, at 7% or more, pension funds will
lock in those rates in a flash, drying up supply."
I made other
mistakes on my call. December is not a time for hiring people. Most
companies wait for the new year before they start hiring again. In
December, they're in holiday mode. Also, there is a huge supply of
Treasuries hitting the market next week, so maybe they didn't want to
spook the bond market right now.
But there is something else I
forgot. One of the best eurodollar traders in the world trades his own
account out of Montreal. He never trades in anticipation of the news,
he trades the news. This also reminds me of one of my former bosses who
traded currencies many years. I used to go into his office and ask
him so where are we heading today? And he would always take out a
quarter from his pocket and tell me "you tell me."
Having said this, I still think it's only a matter of time before we see significant gains in employment. The ISM New orders came in at 65.5 in December,
following a reading of 60.3 in November. This is a leading indicator
for the manufacturing sector and bodes well for employment gains in
that sector (which was crushed in the downturn).
According to the Bureau of Economic Analysis, profits before taxes increased to $157. 9 billion in the third quarter,
compared with an increase of $90.6 billion in the second. Moreover,
real exports of goods and services increased 17.8% in the third
quarter, in contrast to a decrease of 4.1% in the second, and real
imports of goods and services increased 21.3%, in contrast to a
decrease of 14.7% (positive for domestic demand).
When new
orders, profits, exports and imports are all surging at the same time, it bodes well for the labor market. Moreover, Stefane Marion, Chief
Economist and Strategist at the National Bank of Canada, had this to say about today's unexpected drop in payrolls:
The
U.S. lost 85,000 payroll jobs in December, a number that was below
consensus expectations (calling for zero growth) and our own estimate
calling for an increase of 85,000. The December outcome comes on the
heels of an upwardly revised gain of 4,000 jobs the month before. As it
turns out, November was the first month of positive job growth in 23
months.Even if December comes
as a disappointment, we very much doubt that it signifies a relapse in
labour market conditions. The temporary help supply agencies added
46,500 jobs on the month, the fifth consecutive monthly increase. This
brings cumulative job gains to 166,400 in that industry over that
period.As today’s Hot Chart shows (click on chart
above), the growth in help-supply agencies remains strongly suggestive
of overall job creation. In the meantime, consumer spending should
remain supported by the continued growth in the economy-wide wage bill
(total hours worked times hourly earnings) which increased for the
fifth time in six months in December. As the chart above shows, the wage bill was up 2.2% in Q4, the largest increase since the onset of the recession.Even
if the outcome of the December jobs report does not change our views
about growth prospects in the U.S. we recognize that the soft pace of
improvement in labour markets means that the Fed has more time to
remain patient before raising interest rates. As a result of this
morning’s report, we now expect the first Fed rate hike to take place
on August 10, 2010 instead of on April 28, 2010.
Stefane
and his team are among the best economists in the industry and I trust
their judgment because they have made the right calls, even if they
were a bit early sometimes.
But for those of you who only see gloom & doom, I recommend you read Albert Bozzo's article on CNBC, Why Job Growth Will Be Weak—And Painful—This Time.
I prefer to look forward, not backwards, when looking at changing
economic fundamentals. One disturbing trend that concerns me is that job bias claims based on disability and religion are rising.
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Perhaps it's just my ignorance Mr Kolivakis, but what point are you trying to make? Is it that bond yields are going up? You refer to two different traders, one that has a hunch before numbers and one that trades after the news. Are you basing your opinions on these two guys? You make yourself sound like a pinball bouncing around on the table. Then you mention there's a cap on yields at 7%. Gee, thanks. Corp profits are going up because of cost (i.e. labor) cuts. Also, doesn't BLS seasonally adjust for holiday hiring? Just asking. Also, if bond yields soar, as you seem to expect, mightn't capital flow away from equities, into bonds?
A stronger than expected recovery will benefit equities, corp bonds, the greenback, crude and hamper gold and bonds. I went over this in my Outlook 2010 last week. The thing to watch is to see if bonds yields start rising too fast, too soon, which could force the Fed to move too aggressively in raising rates. But unlike some hedge fund managers - like Julian Roberson of Tiger - I do not see runaway inflation pushing yields to 15%+. Despite the rally in stocks, there is a real squeeze on pensions going on, and most pension funds will snap up Treasuries if yields reach that magical number of 7%-8%. Liability-driven investing will cap bond yields at a certain level, but we are likely in for some volatility in the second half of the year.
Leo thanks for sticking your neck out anyway.
I do think too many hopefulls discount the
ravaging and cumulative effect of the
neo-Mercantilists and open borders on the
future prospects of the American worker.
Leo said to look for a breakout jobs number. Off to the races he said. I covered my shorts and went 100%. NOT! What an idiot. No wonder they fired your dumb-ass.
LOL, you must be one of those pension pussies I keep bashing. No worries, and just so you know, I was fired several times from jobs and it was because I refused to keep my mouth shut when I saw something wrong. If you have any guts, post your real name here. Any coward can come take anonymous swipes at me. In the future, have the courtesy to post your real name.
Leo...for what it's worth, I disagree with much of your economic outlook but I have enormous respect for you in that you are using your real name and make your calls/predictions clearly. You're a man that wears his heart on his sleeve, shoots straight the way he sees it, and that is a commendable and increasingly rare quality these days.
All that said, I must say I look forward to when the real bear of this infant bear market rears his head and you get pummelled for your predictions.
Further, I am still astounded that you do not see "major events" on the horizon.
I do wish you the best and appreciate your willingness to continue publishing here on ZH: I read your articles and certainly do expand my knowledge base because of your willingness to share.
Thank you.
Thanks deadhead,
It is alright to disagree with me but you need to tell me what's the catalyst for the next leg down? In 2007, I knew the sit was going to hit the fan shortly after Bear Stearns closed those two hedge funds. I had predicted that the housing/securitization bubble would implode back in 2006. Right now, I have fundamental concerns on the ongoing pension crisis (Black Sloth), but see no Black Swans, not even in China.
Indeed, for all his insistence on being 'forward looking', there sure seems to be a great lack of awareness of the writing on the wall.
I am not interested in silly exchanges today. Stick the facts and try to offer constructive criticism. Read the arguments in my post carefully before you blurt out nonsense. Thx.
Nonsense comes from folks emotionally invested in outcomes like you Leo.
There is no recovery feelings are NOT facts.
Unemployment has created a deflationary loop identical to the 1930's
Foreclosures, defaults, bankruptcies
Retailers can't sell because broke consumers won't buy.
Banks won't lend and consumers can't borrow.
More layoffs, foreclosures, defaults, bankruptcies.
It's probably too late to stop it now.
Obama has wasted a whole year on Communist Healthcare and plans on pissing away the rest of this year on cap and trade
Even Krudman figured out the first stimulus is just a slush fund. Hilary's pollster got 6mm and it goes on and on and on.
EUC is poverty by default and that's just fine with Obama. Statist's don't care about jobs that don't have Government strings attached.
Wise up Leo. There is a real world out there and you need to get in touch with it!
Purely anecdotal, but any increases in employment demand I've seen are absorbed by the workforce already in place. Everyone in my circle (upper-middle class Texans) are pulling out all stops to eliminate debt and rarely buying beyond what is really needed.
People having lost jobs experiencing great difficulty replacing same income. Probably a good example of deflationary loop since shared experiences are affecting behavior of all that I know.
not bad, the "best" economist in the industry only missed by 170,000 jobs
"not bad, the "best" economist in the industry only missed by 170,000 jobs"
>>What a stupid comment! They called the recovery ahead of everyone, and as I said, even though they are a bit early sometimes, they made many excellent calls. I read everyone - EVERYONE - so I know when someone is good and forward looking and when someone is just consensus and backward looking. They nailed the last payroll report and I think going forward, they are right, we will see job growth in Q1 2010. And it won't just be Census hiring (sorry Mish).
You said "They called the recovery...." What recovery? You mean the 1.5% added to GDP by cash for clunkers in Q-3 where the revised growth rate was 1.2%? Were it not for the various government stimuli every indicator would be clearly negative which they will be again once the stimuli either slow or stop.
this is a hugely important point - and not just
because growth is meager - which could hardly
translate into vigorous job growth as leo insists...
the larger points are 1. recoveries typically see
robust if not explosive growth at this point in
their lifecycles. 1.2% suggests an emphysema patient
on an oxygen tank...2. the most important point -
and this is huge - is that 1.2% is within the
sampling error meaning that we might have a higher
growth than reported or we could have contraction....we just don't know....furthermore these government
gdp numbers are based upon flawed inflation
deflators...the government's basis for estimating
inflation is systematically flawed....i go with
john williams' methodology and as such the usa
saw no growth to continued contraction of gdp in
3d quarter.....
arguing about whether growth comes from the government or the private sector in the end loses because you will be trumped by the "win is a win" argument. however, that is not to say that there is not cancerous rot in the win....
so i defy anyone to show me how a stagnant or modestly growing or shrinking economy is going to add strong
employment growth in 01q10.....
finally, if we accept the idea that there is substantial
idle productive capacity whether in manufacturing or
services, then considerable revenue and profit
growth could be had without any rise in employment...
indeed the productivity growth would militate against employment growth....
if you want to talk stupid comments let's talk
about your point of a revised +4000 jobs change
in november....my guess is that given sampling
error it is statistically insignificant and thus
wholly meaningless....it could be + or - 4000
and wouldn't mean a goddamned thing....let's keep
some persepctive when talking about a ~150 million
person work force...
and i got news for you bud - there is no recovery....
ism indices do not make up a recovery....when
you can show statistically significant gdp
growth, profits, and employment growth we can
talk recovery...
your treatment of the ism numbers is less than
honest if not downright deceptive...new orders
may be at 65.5 but the over all pmi index is 55.9
for december (manufacturing component)....the employment component is only
modestly in the growth zone....doubt there is
going to be any galloping employment improvement
coming from a segment of the economy which accounts
for 19% of the usa economy.
for the non-manufacturing index which represents
the other 81% of the economy (and i don't know how the
government portion is accounted - maybe 30 points should be subtracted) the picture is not nearly
so rosy if you call the above rosy....nmi is 50.1
- barely in growth territory...the employment
component shows continued contraction - 23 out of
24 months....
you want to argue about the time tense of the report?
fine but you brought it up and there is nothing
in the numbers to suggest galloping growth in
employment....this economy is not doing 0 to 60
in 5 seconds or even 7 seconds. or 8.5 seconds...
why don't you watch payroll tax withholdings to
get a better gauge for employment? maybe because
those are still sharply down. as for economic
activity maybe sales tax collections would help -
but those are still depressed too so they probably
don't count.
i am all for economic growth or even positive
forecasts if they are based upon hard data
and sound analysis....so far i haven't seen any....
Leo, glad you agree I thought it was stupid comment too, which is why I brought it to your attention. Imagine identifying somone as the best economist in the industry within 24 hours of him missing the jobs number by 170,000.
Precisely why I wrote that, because all traders care about is someone's latest call. Had I come out in November when they were bang on to tell you how good they are, you would have all rolled your eyes. They were a bit early in their calls, but bang on. You'll see what Q1 has in store and make up your own mind.
/////>>What a stupid comment! They called the recovery ahead of everyone, and as I said, even though they are a bit early sometimes, they made many excellent calls./////
what a stupider comment. if they had called the recovery in december 2008 they would still be right ... eventually. but they aren't right now [pun intended]. i have not read their commentary and so have no idea what their opinion is. but i just read yours and i'll tell you this much for nothing: the previous commenter was amusing when he pointed out the 170k miss. at least he, as opposed to you, was on the right track. you owe him an apology. a 170k miss would be bad enough. getting the poles switched from moderate losses to moderate gains is bad enough on its own. all for the best in the business of course. but the best in the business didn't miss by 170k. they missed by closer to 700k. unless of course you like to ignore the 600k+ folks who reportedly exited the workforce. yes yes ... i know ... they likely didn't have jobs in december and so didn't actually loose jobs in december. but they certainly aren't data-points from which recoveries are born.
there is no recovery except for banks borrowing at zero to rape at thirty, and the corporations who are able to continue to contract their workforces while operating in neutral with little or no production. look at lennar ... everyone bought the shit out of lennar the other day when they reported earnings of $300mm. booyah for them. of course its reported that without the tax treatment on failed land deals they would have lost nearly $290mm ... a terrific performance if they're in the tax-treatment-on-busted-land-deal business. at this point in time, based on what you've told us, stefane marion's teamlennar is reminding me strikingly of lennar ... one or the other can be the poster child for this 'recovery'.
And it won't just be Census hiring (sorry Mish).
The census is going to wash the birth/death numbers when they come out. And job growth in Q1 is gonna be green/tech jobs for Acorn and SEIU. Just a little dick waving so Obama can get back to Communist healthcare and his and Algores cap and trade scam.
Leo, I love your articles.
However I believe there is a flow in your analysis - you discount the effects of globalization and Chinese mercantilism. There might be a structural reasons why it will be hard to push the employment right back. The current level of technology combined with the globalization might not support the level of employment above a certain average in the service sector. And the only reason we had a rebound in 2004 might have been an asset bubble.
So the only way to increase jobs in here in the long run is to invest in new technologies and manufacturing techniques and make sure the world trade is FAIR but not to try to blow another bubble. Unfortunately our government does exactly opposite of what might be needed to create new jobs, it feeds ineffective fat and lazy industries combined with an attempt to keep the RE bubble going.
Thanks Comrade, I corrected some stupid mistakes and typos (I was tired last night). My bond trader buddy told me to go long ahead of the report, then short. I should have listened to his setup but I do not trade bonds, I trade stocks and either way, I was going to buy any dip.
As for globalization, it will have a profound effect on jobs across the developed world. But the sad thing is that we in the west are not focusing on developing policies that exploit our technological advantages. We are also way behind the curve on developing a new manufacturing base, with the end result that we have a bloated FIRE sector (finance, insurance, real estate). This is not the way to build long lasting wealth for the broad population. It only benefits the few financial oligarchs and their bankster buddies.
But globalization could also add jobs to the export sectors of the economy. It's not only a lose-lose proposition. It's just that you need to make sure everyone plays the game fairly.
Wealth: Manufacturing, mining, agriculture...
Manufacturing, mining, agriculture...
Manufacturing, mining, agriculture...
Manufacturing, mining, agriculture....................
The farce behind government job stats:
http://www.youtube.com/watch?v=FKuup71_aaM
http://www.youtube.com/watch?v=W_rHpq4q7b4