Applying a realistic labor force participation rate to the unemployment rate series, shows that the real US unemployment rate is now 11.5%, a 4.5% difference from the reported number, and the second highest ever, only better compared to October's 4.7%.
Today's nonfarm payroll number critical "make or break" margin, as estimated earlier by Deutsche Bank's Jim Reid, is a tiny 30K: "anything above +200k (net of revisions) will lead to a further dip in risk as taper fears intensify and anything less than say +170k will probably see a decent relief rally after a tricky week for markets." Goldilocks of course will be the expected 185K but what economists forecast rarely if every happens. So it is likely that what the BLS reports will either be good for the economy and horrible for market, or vice versa. So we decided to put this 30K in context. The charts below show both the average and the annual seasonal adjustment between the unadjusted and the final, adjusted nonfarm payroll print. In the past decade, the average November seasonal adjustment is the highest of all months, amounting to 1.165 million jobs! In other words, the 30K critical difference will fit nearly 40 times in just what the BLS' Arima X 13 smoothing simulator adjusts the actual print by in order to get what it believes is the appropriate trendline, ignoring entirely that in the New Normal all historical seasonal adjustments are no longer applicable.
- HSBC 165K
- Goldman Sachs 175K
- Bank of America 175K
- JP Morgan 180K
- Citigroup 180K
- Deutsche Bank 185K
- UBS 190K
- Barclays 200K
If yesterday's "great" news in the form of a 200K+ ADP, which sent the market sliding, was offset by the "ugly" news of the Service ISM which sent stocks soaring, today there are only "good cops" - first it was the revised Q3 GDP number print far above most expectations, purely on the back of inventory accumulation which however will now detract materially from Q4 growth, and at the same time, feeding the taper fire, the DOL announced that claims for the week ended November 30, which tumbled to 298,000 a 23K drop from a last week's upward revised 321K, the best print since September 2013, and the biggest beat of expectations of 320K since also September 2013, which was when the DOL started upgrading various computer systems making all data unreliable. And while futures assume the number immediately means the probability of a December taper surges, the DOL quietly added that it is "not unusual for claims to be volatile in holidays."
First things first. Losing 39% of your purchasing power over the course of 13 years is criminal. This was purposely created by Greenspan/Bernanke and the Federal Reserve. We're quite sure that most Americans have not seen their wages go up by 39% since 2000; therefore the average American has lost ground. No matter how you cut it, Federal Reserve created inflation slowly but surely destroys the middle class and benefits the ruling class. Ben isn’t working for you. His mandate of stable prices has been disregarded. He does not have it contained.
Judging by massive revision in the October print, from 130K to 184K, or nearly a 50% error, one would think that instead of actually tabulating specific private jobs as it by definition does, using the data entering the ADP private payrolls system, the ADP makes its estimate of jobs based on high inaccurate surveys just like the BLS. Either that, or it was desperate to catch up on the upside to the BLS' own propaganda numbers, which are just as "realistic." That said, the November ADP print soared from 130K to an upward revised 184K in October blowing through expectations of 170K and printing at a whopping 215K. And so the Taper dance is back on as everyone will now expected Friday's NFP to come in scorching hot, and force the Fed to cut its monthly flow by a whopping $10 billion to $75 billion.
Something curious happened earlier today when the DOL revealed its latest initial claims number: while the seasonally adjusted print declined by 10,000 to an expectations beating 316K (a change that identically matched what happened to the Seasonally Adjusted print a year ago), the unadjusted number rose by 37,229 to 363K. That's ok: after all that's what "seasonal adjustments" are for - to take a volatile number which historically posts an abnormal jump or drop in any given week and smooth it out, right? Wrong. Because as the DOL also reported a year ago, the supposedly same "seasonal adjustment" applied to the same week in 2012, when the claims number was 390K adjusted and 359K unadjusted, should have been adjusted in the same direction. And while the 390K claims print in 2012 was indeed a 10,000 drop from the prior week's 400K, the unadjusted number instead of being an increase, was actually a drop, one of 44,768 jobs. How does this same "recurring" seasonal adjustment look further back - after all it is seasonal, so there should be some recurring logic for a specific time of the year? The answer is shown on the chart below.
Initial claims fell 10k from last week's revised (and missing 5 states) data for its biggest beat in 2 months and lowest print in 2 months. The 'consistent' YoY ebbing of the initial claims print (aside from the last month or so's statistical glitches and idiocy) is all too predictable and the market simply shrugged as the claims data remains the least correlated to any sense of employment reality of all jobs data. This is the first supposedly "clean" data with no estimates in 2 months, however, the BLS is quick to point out that "claims are difficult to seasonally adjust during holidays" - so another pinch of salt for this data point.
... According to the BLS, US jewerly imports in the month of October inexplicably just posted their biggest annual drop. On record.
The assessment on the attached chart is very simple: as Stone McCarrthy puts it "this is an indication of an increase in structural unemployment." That statement is quite obvious to the millions of Americans who have been out of a job for years since the Lehman collapse, and have been unable to find a new job despite the plethora of "job openings." However, that's not all. What the implied unemployment rate based on the current level of Job Openings is, is even worse - because it is precisely at the 5.5% level where the Fed would not only taper, not only end QE but begin tightening!
In short: from January to September (we exclude the October 204K print as there is no matching JOLTS number yet) the average monthly jobs gain per the Non-farm Payrolls report is 184K. However, when looking at the implied job gains per the JOLTS Net Turnover, this number is a far more disturbing 150K, some 20% lower.
There were two events of note in the overnight session: first was the return of the Japanese jawboning, because now that the Nikkei has upward momentum - nearly hitting 15600 in early trading only to close unchanged - and the Yen has downward momentum, the Abe, Kuroda, Amari trio will do everything to talk Mrs. Watanabe to accelerate the momentum. In this case BoJ Governor Kuroda said he does not think JPY is at abnormally low levels and consumer inflation likely to hit 2% by fiscal year to March 2016. Kuroda also said he does not think JPY is excessively weak or in a bubble now and JPY has corrected from excessive strength after Lehman. This also means look forward to the daily bevy of Japanese speaker headlines in overnight trading to push the USDJPY and EURJPY higher on an ad hoc basis. The other notable event was the German IFO Business climate which jumped from 107.4 to 109.3, beating expectations of 107.7 and in the process pushing the EUR notably higher, and particularly the EURJPY which moved from 136.30 to nearly 137 or a fresh four year high. At this point European exporters must be tearing their hair out, as must the ECB whose every effort to talk the Euro lower has been met with relentless export-crushing buying.
Barring any exogenous shock, and assuming that current reported earnings estimates actually occur, the S&P 500 will be sporting a P/E ratio of 21.17x in 2015 if fed balance sheet correlations hold. However, if earnings growth stagnates then valuation multiples will rise dramatically from current levels. The further that multiples deviate from the long term mean the greater the eventual reversion will be. Should we have an expectation that the same monetary policies employed by Japan will have a different outcome in the U.S? Anything is certainly possible. However, history suggests that artificial, liquidity driven, market inflations always end poorly.
Adding the claims and PPI reports together: Claims suggest Fed may taper soon if the labor market is indeed improving (with companies hiring part-time workers), while the PPI confirms that at least according to the BLS, inflation is nowhere to be found, suggesting much more QE in stock.
Anyone expecting Obama to come out with his hands up following last night's story about the made up pre-election jobs numbers, and admit to everything... will be disappointed.
- STORY ABOUT RIGGED JOBS NUMBERS WAS MISLEADING: WHITE HOUSE
Ok everyone, back to your 29.5 hours a week job, because as everyone knows the White House would never lie to anyone about anything.