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The Fate Of The December Rate Hike Is In Their Hands
Following the "blockbuster" jobs report from Friday, bond yields soared across the curve as experts everywhere decided that this time it's different, that this is it: with soaring October jobs, not to mention the biggest annual jump in wages, the Fed was out of excuses.
We would like to make three points.
First, the October jobs reports was good, certainly at the headline level, but there is one more payrolls release from the BLS before the December 16 FOMC decision; its impact will be far greater on the FOMC's decision especially if it now shows a sharp decline in jobs (before Friday, five of the past six payrolls reports had missed expectations).
Second, as we showed yesterday, while the Establishment survey reported an unexpected jump in jobs in October jobs, which rose by 271K, far above the highest estimate even putting the very Fed to shame after St. Louis Fed's Bullard explicitly talked down market expectations the night before while trying to convince the market that slowing jobs is not bad for the economy, a deeper look revealed that the Household survey suggested a far less optimistic picture, with 378,000 of the increase in employed falling in the 55 and over age group, while males 25-54 saw their jobs decline by 119,000.
But while this suggests that the headline jobs number may have gotten far ahead of itself and upon reflection will be revised well lower, it does not explain how the October report also showed the biggest jump in average hourly earnings, which rose by 2.5% in October from a year ago, the highest annual increase since the crisis.
Which bring us to the third, and most important point. Where did the wage growth come from?
And therein lies the rub, because after the very disappointing job wage growth in September, October's jump in wages suggests the economy may just be strong enough to weather a rate hike.
There is one problem with this.
To find where this increase in wage growth came from, we broke down the weekly payrolls increase (Y/Y %) by the 10 constituent industries that make up the private payrolls (excluding government). What we found was surprising.
Instead of some broad rebound in October wage growth (red bar in the chart below), and certainly not due to payrolls for mining and logging workers, which is plunging, the entire jump in October average hourly wages can be attributed to just one industry - the one highlighted with a yellow in the chart below: construction.
What this chart shows is that of the 120.7 million private payrolls in October, 4 industries (Mining and Logging; Trade, Transportation and Utilities; Financial Activity; and Leisure and Hospitality) employing 51.3 million workers saw a drop in the annual wage growth rate, which means they dragged down the average hourly earnings, one industry, Manufacturing (which employs 12.3 million), saw no change in its weekly payrolls, and another five industries, which employ 57 million, saw a modest increase in October weekly wages.
And yet nobody was as instrumental to the October wage jump as the Construction industry. That said, nobody was as instrumental to the miss in September wages as the Construction industry because not only did weekly hours for Construction workers drop, so did weekly payrolls. All of this was offset, and then some, was offset in October.
So what is going on here?
The impact of Construction jobs on weekly payroll growth is seen best in the chart below which shows that if one excludes the contribution from Construction, annual wage growth is not improving at all, and in fact is roughly where it has been for the past year, nowhere near close to the blockbuster print revealed on Friday.
Furthermore, as the next chart below shows, the annual growth in weekly
payrolls for Construction workers appears to have finally topped out, and after four
years of increases, 2015 has been the first year in which the pace of
growth declined - clearly weekly payroll growth for Construction workers
is slowing in the second half of 2015. And yet, October weekly payrolls soared, and
at 8.1%, increased at the same pace as last year,
offsetting the recent drop.
Is this sustainable?
The chart above also shows that in the New Normal, not only has there never been such a sharp drop in September Construction weekly payrolls, there has also never been as sharp a jump in October weekly payrolls.
So what happens in November? That, dear readers, is the 25 basis point question - if Construction payrolls rise as the same pace as October, a December rate hike is assured. If however, this industry which employs just 5.3% of the US private workforce, "reverts to the slowing mean" in November, and after a torrid October we have a disappointing November (see red question mark above), then all buts are suddenly off again.
Which is why the fate of the December rate hike is suddenly in the hands of some 6.4 million construction workers. If their wages jump in November, a rate hike it is. If their wages suddenly disappoint as the winter is about to unfold, then watch as the yield on the 2Y plunges in a microsecond when the next payrolls report is released as the December rate hike is once again put on indefinite hiatus.
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No one with an IQ greater than their shoe size, save corrupt, captured American economists, buys the fake October unemployment report:
Another Phony Payroll Jobs Number — Paul Craig Roberts
Another Phony Payroll Jobs Number
Paul Craig Roberts
The Bureau of Labor Statistics announced today that the US economy created 271,000 jobs in October, a number substantially in excess of the expected 175,000 to 190,000 jobs. The unexpected job gain has dropped the unemployment rate to 5 percent. These two numbers will be the focus of the financial media presstitutes.
What is wrong with these numbers? Just about everything. First of all, 145,000 of the jobs, or 54%, are jobs arbitrarily added to the number by the birth-death model. The birth-death model provides an estimate of the net amount of unreported jobs lost to business closings and the unreported jobs created by new business openings. The model is based on a normally functioning economy unlike the one of the past seven years and thus overestimates the number of jobs from new business and underestimates the losses from closures. If we eliminate the birth-death model’s contribution, new jobs were 126,000.
Next, consider who got the 271,000 reported jobs. According to the Bureau of Labor Statistics, all of the new jobs plus some—378,000—went to those 55 years of age and older. However, males in the prime working age, 25 to 54 years of age, lost 119,000 jobs. What seems to have happened is that full time jobs were replaced with part time jobs for retirees. Multiple job holders increased by 109,000 in October, an indication that people who lost full time jobs had to take two or more part time jobs in order to make ends meet.
Now assume the 271,000 reported jobs in October is the real number, and not 126,000 or less, where are those jobs? According to the BLS not a single one is in manufacturing. The jobs are in personal services, mainly lowly paid jobs such as retail clerks, ambulatory health care service jobs, temporary help, and waitresses and bartenders.
For example, the BLS reports 44,000 new retail trade jobs, a questionable number in light of sluggish real retail sales. Possibly what is happening is that stores are turning a smaller number of full time jobs into a larger number of part time jobs in order to avoid benefit costs associated with full time workers.
The new reported jobs are essentially Third World type of jobs that do not produce sufficient income to form a household and do not produce exportable goods and services to help to bring down the large US trade deficit resulting from jobs offshoring.
The problem with the 5% unemployment rate is that it does not include any discoraged workers. When discouraged workers—those who have ceased looking for a job because there are no jobs to be found—are included the unemployment rate is about 23%.
http://www.paulcraigroberts.org/2015/11/06/another-phony-payroll-jobs-nu...
There will be no rate hikes ever again.!!!
< Hike
< No Hike
December...
You are masochistic beg for down vote, you are!
So the conclusion to all this is that the end will come suddenly.
Yes, they hike in December because they were told they have to, not because of any massaged numbers. After they hike and the shaking starts as the carry trade shifts around that's when the Chinese act. Gold backing for their currency? Devaluations and more turmoil? Maybe even military actions. That will be the time for them to act. They will take a cue from the North Vietnamese in 1975. They knew that the South was abandoning the Central Highlands (the Soviets had broken the codes) so they attacked as the division was rolling out of position without a replacement coming in. The division was eaten up opening a huge hole in the lines that the armored units poured through until a week later they rolled into Saigon (Ho Chi Minh City to you youngsters). There is an economic war going on, you can expect the other side to exploit any opening they can foresee.
What I'm seeing in the employment report is a reversal of expected economic support. Instead of the younger generations supporting the older retirees, the retirees will be supporting their thirty year old, basement dwelling, single kids well into the future.
Interestingly, they'll be saying, "I can't afford to retire because my son hasn't got a job." Can anyone see a problem with this statement? A solution?
... and then the kid will be saying, "Look, are you sure that being a part-time greeter at Walmart is really a first step on the corporate ladder? Will I really be able to buy my own home one day?"
Personally, Boris, I like down votes. It shows how effective your writing is. If, say you get 30 down votes , in a 100,000 read article, I would estimate that 10,000 people have read your missive, and you have pissed them off enough to make a minimal mouse click.
Responses vary from a minimal Troll required down vote, to a some what more foreward 'you are an asshole ' comment.
Still noodling on this one.
Hope the future of copper improves for you.
They will definitely hike. It has been the plan to destroy the dollar since 1913. They HAVE to do it, to get all major currencies roughly equal enough in value to make the SDR palatable. And the USA needs to be destroyed in form and fiber as well as fiat. Nationality and sovereignty are anathema to the NWO.
The plan is to collapse the USD in 2017 and to introduce the new global currency in 2018... These are the words directly from the globalist plan stated in 1988... Hell, they even published this plan in the Economist of all places... So, watch for more can-kicking in the mean time...
https://socioecohistory.wordpress.com/2014/07/26/flashback-1988-get-read...
Nice.
Interesting that you can remember that far back.
I can't even remember 1968.
Only the barrage of peckerhead fed mouthpeices to threaten a hike as necessary to sustain the PM crash.
Its worse than that. During her last hearing yellen said "the commitee" might want to raise, hold or even introduce negative interest rates.
Bruhahahaha! This is silly joke! There is no rate hike, not this December, not next December, not until Federal Reserve, ECB, JCB, PBOC, JPM, GS, et al other Illuminati contributor to global banking scheme is all round up like gang of thief and is crush under weight of fiat currency regime they are scheme up. Or until WWIII.
The globalist chessboard pieces are already set for WWIII
Since white always moves first that would be Putin and China followed quickly by the giant snapping sound of a global bail-in and the deafening bleating of billions of sheep...
Wait, wait, please wait! If Amerika is also to play, please we must first train Checker-in-Chief Barry Soetoro how is play Chess. Is maybe take month to train just on movement pattern of Knight.
Advisor whispers in his ear, "Sir think of it as a golfer with a bad swing, it can slice or hook but it can't drive straight"
Better for him to imagine the form Reggie makes when bent over.
just put the moves on a teleprompter
At this stage of this stupid game, I don't even care anymore what they do.
I know I know...
I'm just paying attention so I can get the freshest goods first before the financial system implodes...
Timing is everything, some of my canned goods from when I first thought this Ponzi was going down are getting close to expiration. (Hint: donations to homeless shelters give you tax breaks, credits in heaven and a fresh larder.)
Google "december rate hike" and stand in awe. . This is where QE junkies discover the FED isn't an ATM machine, to their complete surprise.
That first stacked bar chart does not even come close to adding up, Tylers.
. . . . . 378k + 61k + 10k - 35k does NOT = 271k.
The 65k and the 10k have to be negative.
One is establishment, other is household survey. Unemployment number is based on the latter
All lies from the Bureau of Lying Shits. No rate hike ever, bitchez.
blame it on the weather, the climate
or the season cheer. maybe the three
percent neanderthal genetic make up?
.
they are all just nuts.
.
https://www.youtube.com/watch?v=T8XjOWiieYY
https://www.youtube.com/watch?v=keR03_OIqeA
Loudon Wainwright - White Winos / Middle of the Night
.
the stealing will continue till morale improves.
I think there's a decent shot construction wages go up. Speaking personally, I'm about to get a 5-10k raise this month. Our end-of-year company bonuses are probably going to hover around 10K alone (per employee!) On one hand I'm very grateful to be in construction right now, but I can tell you that I know it won't last long. I'm in primarily multi-family housing, and it's a big fat gravy train bubble.
Xatos.
Saw your earlier posts and here in my Midwestern town, they also are building apartments and condos like crazy. I was told by someone who knows some of these apartment owners/builders that they are being offered incredible amounts of money to sell them off to the Wall Street REITs after being built and rented. The investment class just has to try to capture any monthly income stream so it can be put on the books that they have all this future long time revenue coming in. Last time, before 2008 it was all the houses that were being built because anyone who could fog a mirror could get a mortgage and that money flowed through the system causing major mal-investment. With no real need for new house building increase any longer, this time it is all apartments. If you can potentially sell these projects off, the banks will keep lining up to fund the next project. The shale boom, was more of a major player than anyone knows in this recent up turn we had since 2009 and that is about to be played out as you are seeing in the Texas area. Apartment projects in the pipeline keep getting built for a year or two longer than they should, only until the balance sheets start deteriorating, which they are starting to now. I, just like you, can hear the music starting to fade away....better grab that chair and the money while you can!
Great post Walter, that's an interesting insight with the REITs. Thanks for the info bud.
Just like the white winged dove
Sings a song
Sounds like she's singin'
Whoo, baby, whoo, whoo...
"No rate normalization during my lifetime" "Buy gold"
~ B.S. Bernanke 2014 ~ Alan Greenspan 2014
The fed decided they would save the economy by keeping rumors of rate hike going making articles for people to click on.
Your Christmas present this year? No rate hike and a massive dollar selloff
The market will make the next rate hike. When ever it comes back to life
George Costanza was an architect, too.
I believe you're thinking of Art Vandelay...
I don't think Janet Yellin (in the wind) has the ovaries to hike rates. Although she is a "data dependent" person..she makes decisions via a coin toss. Heads = no interest rate increase... tails = an interest rate hike. I don't know how the Fed chairperson does it...but the coin toss has landed on heads for the last 8 years...
A rigged coin gives only one outcome.
"And yet, October weekly payrolls soared, and at 8.1%, increased at the same pace as last year,..."
Maybe it's seasonal. This year, just like last year, contractors pushed to get jobs "closed in" before winter, workers put in overtime, so average weekly wages went up in October.
the fed could hike the prime interest rate if
they could fin/find several million people and their representatives
willing to commit monetary suicide. this would be generally
problematic and perhaps impossible. so, there will be no
meaningful rate hike baring some termination of a global war
for the current monetary paradigm, as far as i can see or use
macro logic which is admittedly slight.
.
here, the current "monetary" anthem no one ever heard.
.
Suicide Song - Loudon Wainwright III
https://www.youtube.com/watch?v=j7nIdg-CTQk
.
it is about what is in your hand and who is in your
pocket. "you can give her the bullet if you can
give her the gun." l.w. III
Hard Day on the Planet - Loudon Wainwright
https://www.youtube.com/watch?v=o9htLZr7DcU
.
remember?
.
Loudon Wainwright III and Kate McGarrigle - Over the Hill
https://www.youtube.com/watch?v=DQWCt4405Ps
.
Once you were a young man,
But now you are old - you're over the hill.
And you can't cross the palm of time's hand
With silver and gold to make him stand still.
Who could have possibly thought
It would go so fast, but it certainly did.
And now you find yourself caught
With less future than past - you're no longer a kid.
Once, as a boy, time weighed heavy on your hands -
You couldn't wait to be a man.
Now you cry - oh, it's so hard to laugh,
And you can't understand why you can't turn time around.
Your hourglass once had a top half
That was filled full of sand, but it's all trickled down.
Ah, Tyler
I wonder if you realized that the answer to the question of the December rate hike lies in the wording of your headline.
There hasn't been a rate hike up until now because of the fear what it would to to the stock market.
Everyone from crooks to naifs knows that if some one or some syndicate has enough 'stock in their strong hands' prices can be prevented from falling.
After six years of buying stock (Dow Stocks) with Bernanke Bank Notes there is enough of that stock now in strong hands to prevent the Dow from going down.
If the Dow doesn't go down, the rest of the market doesn't go down.
Shortly after the First of the New Year, the trading range of the Dow should go from 17,000 to 18,300 to a new range of 18,000 to 19,500.
As gollum metaphorically falls in to the seething magma under Mt Doom beaming from having The Ring back.
Thank you Tyler
The FED has now bought back and owns 70% of the long bonds. How will they raise rates?
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A rate hike? Seriously!? The whole world isn't even circling the bowl anymore, the global economy has been flushed. A rate hike in a going globally negative interest rate environment? Please!!!!!
Let's start with your assumptions. First, the BLS only provides BS. The jobs report is garbage with magical Birth/Death adjustments for that Delicious Creamy Good Taste in their NFP Report. You can plainly see the economy sucks as capex is non-existent and the Baltic Dry Index is feeling around for an even deeper floor. Hmmmmm, why is that? Maybe because the global economy is Cheney Stoking. Why is energy consumption plummeting in all nations? Maybe because the global economy is Cheney Stoking. Ya think.
And what does the Fed's James Bullard from St. Louis know anyway? He thinks the magical Financial Stress Index, whatever that BS is, is not showing a particularly high level of stress as compared to the last five years. And this just gives us that Delicious Creamy Good Taste of an improving economy? Bite me.
And finally wage growth is up in construction? Well, Whoopy Doo because nobody is working. Employment is not 5% and everybody knows at least 2-3 people who are unemployed. Everybody! Period! And I suppose this great wage growth BS is designed to leave us with that Delicious Creamy Good Taste of improvement? It does not.
It is a dead economy, and if you really want to see Janet Yellen, do the Full Monty Puke at the podium, go ahead, raise those rates, even a quarter point. Just like a guy who can't fight and threatens to kick some ass, I believe I would like to see that.
Given the sheer volume of Central Banker "openness" which has PROVEN to be not openness at all, but obfuscation...
Why would you believe that Central Bankers are being honest about what their metrics are?
The truth about a rate hike or lack thereof is that it has absolutely NOTHING TO DO WITH THE ECONOMY per se.
It is about structural issues in the monetary system.
There is ONE AND ONLY ONE FACTOR in the real economy that has a real bearing on what interest rates the economy can sustain.
That factor is technology-driven productivity.
The smaller the inputs needed to create a given amount of productive output the greater the interest rate the economy can sustain.
PERIOD.
Why that rather than the 'health' of a given Industry?
Well, because the 'health' of the industry simply defines its value as versus some other industry. You can think of them as swimming pools.
With a given amount of monetary means (currency) existing, for one swimming pool to get more full, another somewhere else must get less full. One reason we don't hear this is because in the past there was no need to identify that as a fact, because one local swimming pool (industry) could be filled with what is draining from some foreign swimming pool, defined by another currency.
As the world and banking systems have consolidated, this is no longer true. Moving currency around is not making more or less of it. For that matter, making more currency doesn't fix anything, and in fact makes things worse... because then you'll grow industries who produce based on what money-printers and their cronies want to buy, rather than produce to sustain others' productivity.
When you earn your money doing real production, your first and most important purchases are those inputs that make more production possible.
If you are a farmer that might be seed, farm equipment, fuel, fertilizer.
If you run factories it may be tooling and raw materials.
You get the idea.
Money-printers and their cronies are the only ones who don't fit that paradigm. They get their money for nothing. And they don't have to spend it to reinforce any productive cycle. They like rentier assets. They like luxuries. They like many things, that are of much lower value to the rest of us.
As soon as the moneyprinting stops or slows the industries that supply the money-printers and their cronies go belly-up...and any inputs they consume decrease in value.
The debt-based monetary system exists by using debt like a checking account, and then using currency as the 'checks' that draw upon it. The checking account cannot be 'paid off' or even paid down. There is by definition not enough 'checks' in the universe to do that. Instead the debts of earlier maturity are exchanged for larger debts of later maturity ad infinitem....in theory.
This requires ETERNALLY more currency be produced.
In fact, in such a system the ability to 'rollover' that debt is contingent upon the ability of the REAL ECONOMY (that which does not depend upon money printing to be productive) to pay the interest. And the longer such a monetary system exists, the more difficult that burden is to bear.
And in a self-referential viscious cycle, the more difficult it is for the REAL ECONOMY to sustain the interest, the more currency must be printed (debased) to allow payments to continue, preventing the whole thing from collapsing.
The real economy became unable to pay any rate at all in 2008.
The subsequent money printing delayed monetary collapse. But it did so at the cost of INCREASING the interest burden of the REAL ECONOMY both by expanding the absolute level of debt, and by siphoning more resources away from the REAL ECONOMY to the inflationary bubble-economy.
Today, we have reached a point where any positive real rate will trigger a currency collapse.
Growth in a bubble industry whose fortunes are tied to how much *free* money are given to Fannie and Freddie indicates absolutely nothing with regard to interest rates, or sustainability. The construction industry cannot inflate forever, yet any interruption in its growth will return it to a state of collapse.
While we have a deb-based financial system, any interest rate, must be matched by increases in productivity, such that the economy is producing more faster than the interest rates are removing it.
The main problem for central bankers and other central planners is that they can't tell the difference between the bubble-economy and the real one. So they habitually conflate bubble-growth with real growth.