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What Happened in September?
For me, there is a disconnect in the economic numbers of late. Car sales, the ISMs, NFP (and others #s) are not pointing to a recession. The September numbers look more like an economy growing at 3% than one struggling at 1%. So I’m confused. I think the markets are as well.
All the numbers that we get that shape the collective assessment of, “How are we doing?” are seasonally adjusted to smooth out results. On balance, I think the numbers are reasonably close to reality. But they are also flawed.
One area that I have observed over many years that creates “noise” in the numbers is the Five Friday Month effect. Every year there are two months that have five Fridays. For those who are getting paychecks weekly there is an “extra” paycheck. For those who get a paycheck every other week there is also two months where there are three paychecks. Weekly earners get 20% more take home in those months. Those on a bi-weekly schedule get a 33% pop in income. It is important to note that not all five Friday months result in an extra check for bi-weekly workers. (August of 2011 had 5 Fridays, but only two bi-weekly checks). The months that have the 5 Friday phenomenon change every year (It’s never a February).
Look at September 2010 vs 2011. In 2011 there were 5 Fridays. It was also a month where bi-weekly earners had three checks.
Some of this should be adjusted in the numbers that have been released. I think that there is still a distortion in the YoY numbers that is giving a misread on the economy. We shall see.
If you believe there is something to this statistical fluke then consider the comparison of October 2010 and 2011. In 2010 October was a five Friday month and it was also a month that had three checks for the bi-weekly earners. Just the opposite occurs in 2011. My conclusion? October is going to disappoint.
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Good Post, Bruce
it seems most do not understand that it is not how it is paid as much as how it is accounted for-----
It is all weekly for most employees, and they spend it weekly, but when it is thrown into a calendar month it is accounted for differently
That is not so difficult to understand om
Extra paycheck is nice, but the weather is also in play
Summer here in upstate NY this weekend - 70s & full sun
Lots of folks out spending $FRN$ like crazy
Boat launch waiting lines
Maybe global warming not so bad
I would assert that he five-Friday effect has an impact on people living paycheck to paycheck, almost exclusively. additionally, not all payroll calendars follow suit. I am paid bi-weekly, and was paid on the 9th and 23rd of Sept., so it had even less effect for me.
Addtionally, the NFP number will probably be revised downward. Not saying that I am certain it will, but it wouldn't surprise me if it did. Car sales usually mean taking on more debt, so I am not sure how this in an indication of a 'growing' economy. I'm not privy to the basis that the data for the manufacturing data are reported, can't speak to that metric.
Overall, good insight, but I wouldn't be so hasty as to correlate 'how are we doing' based on these criteria alone...
Math is hard
Interesting insight Mr. Krasting. I am an extreme statistical anomoly so I skew the data. My income is partially monthly (rentals) and a couple of times a year...lump payment for large projects. As a result for the last 25-30 years I have adopted an "annual budget".
However, the vast majority of workers live paycheck to paycheck, and have no safety net, so a 5 friday month would make a big difference to them for that month.
Then of course there are the subsidy payment recipients, who get their EBT's monthly.
Clearly we need to start adding more Fridays to our months if we are ever to start growing again.
We could adopt a "metric calendar". 10 seconds to a minute; 10 minutes to an hour; 10 hours to a day; 10 days to a week; 10 months to a year...
Just saying ;-)
One of the overlooked events of September was the attacks on our most basic property rights and our access to food. If this goes unchallenged and undefeated, the economy becomes the least of our problems.
Harmon Taylor addresses this latest attack on the food on our tables. The conditions that I described in “Eminent Domination” are carried into every aspect of private property rights. Pleas pay particular attention to the areas involving the term “by agreement”. It is by agreement that all intrusion and infringement comes.
http://georgesblogforum.wordpress.com/2011/10/07/legal-reality-newslette...
Bruce,
Not sure how this fits in but my pay was every other Tuesday. Some agencies/companies use days other than Friday. SS checks I think are on the first but my annuity check is on the last day of the month. I understand that some retirees get checks on the first as well. This would skew the 3 paycheck months to other months.
But, many are paid 1st and 15th or some such combination. Aren't they screwed 2 months a year? Have to make check stretch 3 weeks instead of 2? Seems it would balance out somewhat.
"In 2010 October was a five Friday month and it was also a month that had three checks for the bi-weekly earners. Just the opposite occurs in 2011. My conclusion? October is going to disappoint."
It depends doesn't it. I own a business and pay bi-weekly. Payroll is a big expense for me. 3 paychecks in one month mean my profits go down. If you're an employer, the books for October should look better than a year ago.
A question: Which month is it more likely that a two income family has the extra money in the bank to put a downpayment on a car? A month with five paychecks, or a month with four?
The answer has to be 5.
13mm cars got sold (at an annual rate) in Sept. That number is adjusted. But is it adjusted right? We shall see when the October numbers come. I think that September robbed from October. Not just cars. My guess is Walmart had a better month end then usual.Many of their customers have been limping over month end.
Walmart reports quarterly. This does not impact them at all.
"The answer has to be 5."
I beg to differ, I believe it's 42. Just ask Zaphod!
sorry, duplicate.
Thanks as always for an interesting piece of analysis, Bruce.
Minor niggle: It is possible to have a 5-Friday February in leap years.
Cool.
Only a derivatives trader would have this kind of stuff on the tip of his tongue/pen!
Have put zero loss sell orders on BAC @5.70; and the S&P@1105. Have a nice weekend.
Monday might open up (given how broken the markets are, almost anything is possible), but the trend is doowwnnnnn.
Your "zero loss" sell orders are more appropriately "zero gain" sell orders. Considering that we're settling at 1150, I'd have to ask wtf the point is in setting your stop way back in crash-land.
Even if Bernanke called QE3 today, the 'bull market' that resulted wouldn't last more than a month before europe and asia explode and utterly cancel anything and everything he does.
"BAC @5.70"
If you bought BAC in January (Cramer's Buy Recommendation), then it was probably pretty painful watching the decent from $14.40/share. Even the plunge from $7 at the end of August would sting a bit (albeit in good company with Warren Buffet, though I don't think Lunch was included). However, if I may be so blunt, is it not time to bail immediately instead of waiting for (yet another) trigger?!
The biggest effect of government collected and calculated numbers is the manipulatin that take place afer the data is gathered. Seasonal adjustments would be fine as long as they also report the non seasonally adjusted number.
Bruce,
Thanks for the obervation. Lots of ways to profit in an oscillating market and capital chases producitve yeild on our slow race to the bottom. I definitely see oscillating as folks run from one side of the boat to the other and the HFT bots drive the VIX up and down as banks CDSs explode on rumors. I will superimpose your observations on top of these oscillations and see what I get. As always - hedge accordingly.
the Dow in
the 61 Octobers since 1950 has been up
36 times (59%) and down 25 (41%).
And 1929-1953? Or 1870-1893? One needs a broader historical perspective (the subprime risk modelers didn't look quite far enough back- "housing prices always rise"), i.e. the hundred year flood may not happen in the first 60 years....
And 1929-1953? Or 1870-1893
************
What does it matter when none of the companies that were on the DOW back in 1800 or even 1950 or whatever-even exist today?
The companies don't matter, the crisis state of the market does, which is what we are trading in now. The elite families behind big market moves have not changed, your owners are basically their grandchildren and the apple does not fall far from the tree.
Out of a total of 35 bull markets since 1900, October has
been the pivotal upturning point after 12 bear markets: 1923, 1946, 1957,
1960, 1962, 1966, 1974, 1987, 1990, 1998, 2001 and 2002. Seven of these 12 pivot points mark the beginning of a bull market.
Pretty strong argument to seek inflation hedges NOW, but I just don't see the bull with margins being what they are now. Input costs for my business are still up YoY. Oil will ride the bull and then it is game over for the American economy.
Well personally-I'm seeking deflation hedges-
Cash and Gold with the exception of rare earths and likely Oil at some point in the future-
Let me clarify - inflation in everything you need for survival, deflation in everything you don't.
The YOY combined with calendar gymnastics whether it be Easter or Xmas etc create noise and muddy the waters, no question. It wasn't surprising today to have the MSM finanical pundits spin the data. Even the somewhat balanced Tom Keene framed it positively referring to today's numbers as generating a collective sigh of relief as his guest attempted to school him in the proper interpretation of the data.
The politicians, regulators and their media partners continue to try and influence the psychology of the all important consumer through a constant barrage of BS spin and fudged numbers and worse the insidious corrupting of methodology and regulation whether it be FASB mark to make-believe or the calculation of inflation, employment etc. And the banksters reap larger and larger rewards with impunity.
I have a hard time reconciling any number of statistics with what I "see with my own eyes". The business that I am with had a rough but profitable year in 09, and has had wonderful results in 2010 and 2011. Is this due to fewer competitors as less credit worthy enterprises are choked off? Are the industrial/manufacturing sectors we serve actually better than the national and regional statistics? Is it just general region strength? I honestly don't know.
Como say what? An extensive sampling of economic data don't support the notion of recovery. I may be biased by recent experience, having personally laid off 10% of the companies workforce, one meeting at a time on Tuesday and Wednesday of this week, knowing that some of the younger workers will not find replacement jobs and imagining the aggregation of multiple generations of family under one roof in the effort to tough this one out. Anecdotes don't make an economic trend (unless you have a whole lot of anecdotes) but in this case I think it's a fair reflection of what to expect. I suspect that what stunted growth we've had- the blunting of the economic collapse which is coming, is a result of rather massive, questionably directed and largely ineffective stimulus. Markets were kept afloat in the fire hose of liquidity which did not truly quench the fires of a burning down economy. Maybe a block here and there.... October (or November, or December) will be touched by a Black Swan. A sovereign default; a large financial institution requiring recapitalization from a government with much fewer resources. It will re-ignite the smoldering inferno from 2008. The game now is not to be the one to drop the match; to not be the one standing when the music stops. I can only hope I'm wrong (I'm smoking the wrong hopium- despairium maybe....).
I'm glad you left the other 90%.
It would seem that the tower of stimulus has a cathedral atop called Solyndra. That was *my* fiat they spent. Darn.
We have left about 85% of the workforce of last week (20 layoffs total). I only personally gave the news to 10%. Telling them to keep their heads up, they'll find something wasn't said with confidence. Almost everyone had a degree, and included 2 layoffs with M.D. degrees. They weren't shovelling dirt and in general had very specific skills (although housekeeping got hit too...). Just an anecdote but unfortunately I think they're not hard to find.
If they are care provision (vs research) MDs, they could always come to the Cincinnati area- my institution is always in search of providors- hospitalists, critical care/pulmonary, etc...
It is one of the hardest things to do as an executive - especially knowing you are sending them into the economic abyss. Reasonable severance helps a little. But it has to be done so the remaining 85% have the opportunity to survive. Rest well.
Folks, you'd have to have a lot of children to stretch around a nuclear bomb like displayed above. I call she-nanigans!
Could be a suitcase nuke for all you know. Or maybe the aftermath of a death-ray from the sky?
That's a Banksy.
Snap!
TGIF, bitchez!
October 7, 2011 5:10 AM ET
http://money.msn.com/business-news/article.aspx?feed=AP&date=20111007&id...
"No one saw this coming," testified the Bankers....
Not sure how he determines when those who are paid on bi-weekly receive their checks. I am paid on a bi-weekly baiss, and I got paid today, not on the 14th.
when are food stamps issued along with unemployment checks and other forms of welfare payments including but not limited to banskter bonuses?
Most forms of gov assistance are 1st of the month, but unemployment is usually weekly.
October may disppoint, but blaming the 5 Friday effect might be a teeny bit of a stretch There are so many other pushes and pulls that singling out one of them is foolish. It's what the MSM does every day in their braindead comments on why the market did what it did that day for assure the masses that they have the answers that keep their customers coming back for more when they haven't the vaguest notion of why the markets moved one way or the other, with the sole exception of truly anomolous events, like 9/11, financial terrism, and nukular atttack.
And if October doesn't disappoint? Then does one abandon for all time the number of Fridays approach to market analysis? Or repeat it again next year?
Total annual payroll = $5T. About $100b a week.
Assume half of workers are weekly the others bi-monthly. Assume that half (again) of the bi-weekly's have a 3 check month. (1/4 of all workers are not impacted)
The weekly folks get an extra $50b.The Bi's get $25b. $75b is a big number in a month. Is it all spent? No. Is none of it spent? No. Do the existing seasonal adjustments capture this accurately? I think not. Is this a possible reason for the better than anticipated numbers for September? I think so.
As you suggest, there are other pulls and pushes. But yes, I would look askance at all YoY comparisons where the months flip from 4 to 5 Fridays.
Yours Truly,
MSM Fool
This October, while only having 4 Fridays, has 5 weekends. I would imagine it is a month where more retail spending would take place since there is one extra weekend in the month. Is this something that is accounted for in seasonal adjustments? This may be what could prevent October data from disappointing.
Bruce - thanks. I would say your calculations are pretty good.
Customer behavior is a multidimensional model, and this "fifth friday' effect should be accounted for. After all, during the Christmas time, the analysts look at how many weekends are during the season, and what is the weather.
My guess is that most of that extra pay check ends up being immediately spent. People wait for this extra check, and have an idea how to spend it.
I am sure that in September there was a small uptick due to the fifth friday.
All the talk about push and pull is trivial.
The anony comment is asinine.
Krasting brings up an interesting point. "Singling out" the possibility of a 5-Friday Effect isn't foolish at all.
If anony is skeptical--as anony should be--then anony should get off of anony's ass and simply test the 5 Friday effect. Just start with retail sales and go from there. Go to EconoMagic and get the data.
Are retail sales better in 5 Friday months? Hell, I don't know. But instead of pointing out the obvious about "push and pulls" in the economy, just test it. [Thanks for that on the "push pull" btw...it was really, really insightful and not MSM at all. In fact, all these years I had no fucking clue as to what was happening, but now I'm no longer in the dark: It's all happening because of the "pushes and pulls".]
And if you don't care enough to test the 5 Friday Effect, then STFU.
Even if it Krasting's theory doesn't hold up, it's still an interesting thought. Krasting is not MSM at all...he consistently brings it with every post.