Bureau of Labor Statistics
If a Greek default is not enough for the compulsive speculators out there, as a reminder today we have that all important February NFP number release, which on one hand we have ADP as indicating in line with expectations of a +210,000 print, on the other we saw both Gallup, Initial claims and the ISM as well as various diffusion indices as pointing to a weaker print. Here is Goldman, which has come in slightly below expectations, with a forecast of 200,000 offset by a further reduction in the unemployment rate to 8.2%. Of course, as we noted last month, once the US participation rate hits 58%, the unemployment rate will actually mathematically go negative. And strangers years have happened in an election year... From Goldman: "We expect tomorrow's employment report to show solid nonfarm payroll growth of 200,000 in February after 243,000 in January. Although unseasonably warm weather should again boost payroll growth in February, we expect a moderation in the rate of job creation due to (1) a likely payback in manufacturing employment; and (2) mixed labor-market news since the last report. Uncertainty around the extent and timing of the weather effect and manufacturing payback suggest risks are probably tilted to the downside of our forecast. We expect the gain in employment to push down the unemployment rate by 0.1 point to 8.2% in February."
Update: as expected, the SKAI number which ramped the market was sheer idiocy, and was based on the assumption of a CAC trigger, which obviously means that all bonds should accept following the trigger of the coercive clause.
The time to submit one's response to the Greek PSI has now ended. The next milestone is 8 am local (1am Eastern), when the full results will be announced. But why wait: according to Greek SKAI, participation is now over 90%. That Greece has been known to adjust numbers even more than the BLS is well known, but who cares: the market has taken this rumor and is running with it. Whether this also means that there will be no need to even bother with CDS remains to be seen, as participation, i.e., responding to the exchange offer, does not mean agreeing with the terms of the exchange offer, but market always shoots first and asks questions later. Finally, since UK law bonds are 13% (not to mention Swiss and Japanese-law) of the total it is amusing that once again nobody can do simple math. Incidentally, SKAI appears to be pulling numbers out of glutes. From the Guardian live blog: "Whoever gives percentage rates now is naive. There are only four or five people on the planet who know the exact percentage and those who claim to know are just guessing." And just out from Dow Jones: Government official tells us debt swap participation rate hovering around 80%.
As we head into tomorrow's all-important NFP print, that will make or break the next month's market action and political posturing, we thought it worth highlighting just how statistically farcical the accuracy bias is in this data. As we pointed out in January, this time of year is prone to extreme seasonal adjustments and moreover, this year has seen these adjustments breaking records in their relative scale. As TrimTabs notes the seasonal adjustment for February is likely to exceed 1.5 million jobs, which is many times greater than the job growth the BLS is trying to measure. They expect a 149k add, down from their 180k add forecast for January, which is well below the 210k consensus estimate but we note that the difference between the highest analyst estimate (+275k and no its not Joe LaVorgna) and the lowest (+125k) is entirely covered by a mere 10% disturbance in the BLS-'force' of adjustment. Critically, this means that whatever they need the number to be, it will be though we hesitantly point out the sad reality that while we have added jobs for 17 consecutive months (apparently), the average 133k addition is still insufficient to absorb all the new entrants to the labor force, suggesting the unemployment rate is likely to remain above 8%.
When it comes to economic data, there is the BLS's seasonally-adjusted, Birth/Death-ed, Arima-factored, goal-seeked, election year propaganda, or there is real time polling such as that conducted every month by Gallup. And while there is no doubt tomorrow's NFP number will be just better than expected (after all it is an election year for the Derpartment of Truth), the reality is that in February unemployment, that measured by the impartial polling agency Gallup, soared by 0.5%, the most since late 2010, from 8.6% to 9.1%, and back to August 2011 levels. As for the U-6 BLS equivalent, Gallup's underemployment metric rose to 19.1% from 18.7% in January, and a 18% low in mid 2011. The good news, it is just modestly better than the 19.9% in February 2011. Gallup's conclusion, which should be pretty obvious: "Regardless of what the government reports, Gallup's unemployment and underemployment measures show a substantial deterioration since mid-January. In this context, the increase in unemployment as measured by Gallup may, at least partly, reflect growth in the workforce, as more Americans who had given up looking for work become slightly more optimistic and start looking for work again. So while there may be positive signs, the reality Gallup finds is that more Americans are looking for work now than were doing so just six weeks ago....In mid-February, Gallup reported that its U.S. unemployment rate had increased to 9.0% from 8.3% in mid-January. The mid-month reading normally provides a relatively good estimate of the government's unadjusted unemployment rate for the month." Ahh.. Unadjusted. As for tomorrow, expect the BLS to continue in treating seasonally-adjusted Americans like idiots, and pushing the disconnect between the economy as seen by DC bureaucrats and Joe Sixpack to record spreads.
The traditionally C-grade, and very noisy ADP number, has printed at a 216K private payrolls added, on expectations of 215K, or precisely in line, even as the January print was revised modestly higher from 170K to 173K. Of course, since the track record of the ADP as a NFP predictor is absolutely atrocious, and when one adds that the ADP had its annual revision take place today, this number is all about seasonal adjustments as was the BLS January print. What was amusing is that not only were finance jobs added (+14k), but so were manufacturing (+14K) and construction (+16K) jobs.
The most profitable business of the future will be producing Space Available and For Lease signs. Betting on the intelligence of the American consumer has been a losing bet for decades. They will continue to swipe that credit card at the local 7-11 to buy those Funions, jalapeno cheese stuffed pretzels with a side of cheese dipping sauce, cartons of smokes, and 32 ounce Big Gulps of Mountain Dew until the message on the credit card machine comes back DENIED. There will be crescendo of consequences as these stores are closed down. The rotting hulks of thousands of Sears and Kmarts will slowly decay; blighting the suburban landscape and beckoning criminals and the homeless. Retailers will be forced to lay-off hundreds of thousands of workers. Property taxes paid to local governments will dry up, resulting in worsening budget deficits. Sales taxes paid to state governments will plummet, forcing more government cutbacks and higher taxes. Mall owners and real estate developers will see their rental income dissipate. They will then proceed to default on their loans. Bankers will be stuck with billions in loan losses, at least until they are able to shift them to the American taxpayer – again.
Having spent this money, your next concern becomes avoiding popular outrage as sooner or later folks will find out that this money was practically given away and that everyone else got a raw deal. Let’s say that you just spent a large sum, to the tune of several trillion Dollars, bailing out various businesses that were literally run into insolvency by shortsighted and greedy business practices.
Two weeks ago we penned "As US Debt Hits New Record, Fiscal 2012 Tax Revenues Are 10% Higher Than Debt Issuance" which unfortunately was very wrong: we completely forgot that tax revenues in the US are a two way street particularly from January through the end of tax season on April 15, when income and employment tax withholdings are offset by tax refunds as consumers rightfully claim (and in the process pad TurboTax revenues simply for having under-exempted themselves) what was overcollected by the government. Unfortunately, it also means that we showed the US in a far better fiscal light than it is in reality, because contrary to our conclusion that tax revenues are higher than debt issuance in fiscal 2012 (starting October 1, 2011), the reality is not only a mirror image, but worse, with total debt issued now surpassing net revenues (withholdings net of refunds) by a whopping 15%! In other words, for $710.7 billion issued in debt YTD (debt has risen from $14.79 trillion to $15.5 trillion), net tax revenues have risen only by $607 billion. Which means that contrary to conventional wisdom that the US collects in taxes modestly more than it issues, at least through the peak of tax refund season that is certainly not the case. It also means that little by little that neo-Keynesian ideal (where we hope we jest but are no longer sure) of all deficits being funded purely by debt issuance, is slowly coming true.
And some more bad news for the economy, as the driver of 70% of US GDP, the US consumer, continues to retrench. Today's personal spending and income data showed several things: that in January Personal Incomes did not keep pace with the rate of growth, rising 0.3% compared to 0.5% in December, and less than the 0.5% expected. Spending also missed expectations of a 0.4% rise, instead picking up just 0.2%, from 0.0% in December. More importantly, we once again see that living in a socialist state has its drawbacks when the spigot is shut off: among the biggest drivers for the weak data was a change in government handouts: "Personal current transfer receipts decreased $3.6 billion in January, in contrast to an increase of $13.8 billion in December. Within personal current transfer receipts, “other” government social benefits to persons decreased $14.9 billion in January, in contrast to an increase of $1.5 billion in December. The January change in “other” government social benefits to persons reflected a decrease of $13.6 billion due to the expiration of the Making Work Pay refundable tax credits." Luckily what the government takes with one hand it offsets with the other: "Government social benefits for Medicaid decreased $7.8 billion in January, in contrast to an increase of $0.2 billion in December. Government social benefits for social security increased $20.3 billion in January, compared to an increase of $9.6 billion in December. The January change reflected 3.6-percent cost-of-living adjustments (COLAs) to social security benefits and to several other federal transfer payment programs. Together, these COLAs added $30.2 billion to the January increase in government social benefits to persons." Well at least somebody still does COLA in this day and age of ubiquitous 'deflation.'
A rather uneventful initial claims report which came in line with the election year expectations, beating consensus of +355K modestly, at 351K, which is where it was last week, except for the traditional 100% of the time, upward revision to last week's data, which was pushed higher from 351K to 353K, and in turn which will force algos to read the news as a decline in claims. Today's number gets some additional scrutiny as it comes in the NFP survey week. Continuing claims same deal: the number came a little better than expectations of 3418K at 3402K, was a deterioration compared to the unrevised last week number of 3392K but an improvement to the revised # which was 3404K. On the other hand, people at the trailing end of the cliff declined, as those on EUCs and Extended benefits dropped by 16K in the week ended February 11. As a result, people collecting extended benefits are now 1.13 million less than a year ago, and no longer collect direct BLS benefits. As for disability that's a different matter. Finally, none of this impacts America's young workers, who as noted yesterday, have an employment rate of 54%.
"It Ain't Over Till It's Over": Empirical Observations On Who The Next Occupant Of The White House May Be And WhySubmitted by Tyler Durden on 02/28/2012 22:44 -0400
It is appropriate that as a post-mortem to tonight's GOP primary, which according to initial reports has Romney as winning both Michigan and Arizona, we have ConvergEx' Nick Colas providing an extensive summary of the factors in favor and against both the presidential incumbent, and the challenger, and in doing so handicap the possibility of election victory for either Obama or the Republican candidate, whoever he may end up being. As Colas says, 'it ain't over till it's over' - "As the battle for the 2012 Presidential election begins to pick up speed, we read a flood of reports that President Obama is a lock for reelection. And just as many that he is destined to be a one-termer. Those who believe that the winner of the 2012 election will be Republican claim that the keys to Obama’s downfall will be unemployment, skyrocketing oil prices, and increased federal spending. However, according to historical data and some political science theory, it looks like Obama has a pretty good chance of staying in the White House.... The GOP isn’t out of the race yet, but it’s up against some strong historical opposition." And while we would agree that all else equal Obama likely is a shoo-in, never before will there have been a full blown debt ceiling crisis in a repeat of August 2011 in the weeks and months leading into the election - that factor alone, in our humble opinion, could end up being the swing variable that pulls the otherwise ironclad victory away from Obama's clutch, and explains why the GOP caved so quickly on the payroll tax extension which will add $100 billion in debt, and force a debt ceiling breach ahead of November, as was first predicted on Zero Hedge. That, of course, and runaway oil: should crude continue its relentless surge, which it will if QE3 occurs, or an invasion or Iran becomes reality, Obama can kiss another 4 years goodbye.
Et tu, Brute!
The real world revolves around cash flow. Families across the land understand this basic concept. Cash flows in from wages, investments and these days from the government. Cash flows out for food, gasoline, utilities, cable, cell phones, real estate taxes, income taxes, payroll taxes, clothing, mortgage payments, car payments, insurance payments, medical bills, auto repairs, home repairs, appliances, electronic gadgets, education, alcohol (necessary in this economy) and a countless other everyday expenses. If the outflow exceeds the inflow a family may be able to fund the deficit with credit cards for awhile, but ultimately running a cash flow deficit will result in debt default and loss of your home and assets. Ask the millions of Americans that have experienced this exact outcome since 2008 if you believe this is only a theoretical exercise. The Federal government, Federal Reserve, Wall Street banks, regulatory agencies and commercial real estate debtors have colluded since 2008 to pretend cash flow doesn’t matter. Their plan has been to “extend and pretend”, praying for an economic recovery that would save them from their greedy and foolish risk taking during the 2003 – 2007 Caligula-like debauchery.
Debt default means huge losses for the Wall Street criminal banks. Of course the banksters will just demand another taxpayer bailout from the puppet politicians. This repeat scenario gives new meaning to the term shop until you drop. Extending and pretending can work for awhile as accounting obfuscation, rolling over bad debts, and praying for a revival of the glory days can put off the day of reckoning for a couple years. Ultimately it comes down to cash flow, whether you’re a household, retailer, developer, bank or government. America is running on empty and extending and pretending is coming to an end.
Silver and Gold remain the major outperformers year-to-date but the rest of commodities - most notably oil is catching up very fast having over taken stocks this week. It appears that the new-found flood of liquidity that we have been so passionately banging the table on for weeks, has found its way into the energy complex as European Sovereigns, European Financials, European Stocks, and US Stocks have all flattened or turned down as Crude and WTI surge. And as a hint to anyone who hasn't jumped on this tidal movement yet, one thing to note is that unlike stocks, commodities always have the risk of marginal or weak hands being shaken out via CME...margin hikes.