This Friday's NFP Will Be A Disappointment: Here Is Why

Tyler Durden's picture

Earlier today we noted that while the headline Services ISM number came slightly better than expected, if still damn ugly, it is the Employment index which stuck out, coming at an almost 2 year low and which, as the chart below demonstrates has an uncanny correlation with the NFP number. In fact, based on the two series' 5 Year rolling correlation of 0.89, the September NFP is expected to print at just about ~0, unless the establishment survey has somehow joined the Chicago PMI in decoupling from the rest of the US economy. But that's only half of it. As BNY's Nicholas Colas reminds us, a far more important and fundamental driver is the trend in monthly tax receipt withholdings, which actually indicate not correlation (which never implies causation), but true causation: i.e., if less tax withheld, then less people employed - simple. To wit: "If employment is improving on a monthly basis, it should show up the Treasury data pretty quickly. New hires – and existing employees, for that matter – usually receive their compensation in the form of a paycheck. The monies withheld for items like Federal and state taxes as well as Social Security go directly to Treasury from a payroll processing company or employer. There are always adjustments to be made as you analyze the data, of course, as withholding tables are a favorite political tool to juice the economy when things are slow." Unfortunately, the data is far from pretty, and in this case causation does imply correlation.

But speaking of simple correlation, here first is just NFPs compared to the Employment Index in the Services ISM. As can be seen, NFP would be expected to come in not only below 60,000 which is the consensus (and Goldman at 50,000), but negative.

But, far more importantly, the actual causation of tax withholdings as proxy for actual jobs. From BNY ConvergeEx:

We’ve attached several charts to highlight the most recent trends and what they say about the both the upcoming Friday Jobs Report and the current U.S. employment picture. Here are a few summary points on the topic:

  • September’s total receipts (adjusted for changes in withholding tables) were up 5.9% from last year. That’s slower than the August data, which was up 9.5%. When you only look at deposits to Treasury for paycheck-type withholding, the results are largely the same. Taxes and withholding from this source is up 5.9% as well, as lower than the 8.8% increase year on year in August.
  • The three month rolling average for increases in tax and withholding receipts is certainly moving lower, and peaked in the Winter/Spring of 2011. This corresponds very well to the lower jobs growth numbers we’ve seen in recent months, punctuated by the August zero reading.
  • The summary message here is that we shouldn’t expect very much from the Friday Jobs Report, the current +60K headline estimate notwithstanding. Labor market conditions do not appear to have strengthened much in September. The incremental tax receipts we are seeing point to employers either hiring more part-time labor or paying select employees an incrementally better salary. Real labor market growth is likely still on the back burner.

So when NFP comes in far worse than expected in order to make the case for the Goldman wet dream of $2 trillion in LSAPs, please do not be surprised.

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TradingJoe's picture

Who cares, they'll spin it till they winn it! Or until we SHOOT them in the HEAD, execution style!

Shocker's picture

Your Right, number can be spun any way they want. People know, they walk around, they shop. They see things are not good at stores, and tons of places for rent.

The time is now for some real ideas to come foward and try to get this economy going again. Otherwise, its just going to continue


ratso's picture

Tyler - You may be quite wrong on this one.  If less tax is withheld it might mean fewer people employed BUT it may also mean the same or more people working at lowere wage rates.

SystemsGuy's picture

Possible, but unlikely here. If employment is picking up, that gives more strength for existing employees to ask for raises as employers will be more likely to want to hold on to existing employees before taking on new ones. This would more than offset people "voluntarily" taking paycuts elsewhere, or hiring increasing with people coming in at lower salaries. Additionally, companies are more likely to hire from a contracting pool as 1099s than they are W2s, which means that contract hiring numbers should begin showing some strength, and from what I've seen elsewhere, most contract hiring is stagnant or on the decline. Your scenario is probably more likely just past the top of a cycle, when employers are trying to keep their existing workers but business is beginning to dry up and so they're willing to invest less or even ask for/demand a reduction in salary. I don't think we ever reached a point since 2009 where business really became robust enough for that to happen here.

ratso's picture

Thanks for the thoughts.  We will have the answer soon enough.

r101958's picture

All well said and most likely correct. However, stand by for the possibility that the headline UE rate might go down. Why? Because they will once again chop 300k or 500k off of the work force participation numbers thereby allowing the UE rate to drop or stay the same. The people dropping off will actually be the 99ers dropping off the back end and not being counted as unemployed anymore, even though they really are unemployed. We all know that the headline UE rate is what will be touted by the MSM even if there were 0 or only 10k jobs 'created' last month. Same ole schmidt, different day. Who knows though...I might be wrong and they might decide to report real numbers this time. On the other hand, no, I don't think so.

ratso's picture

It's always been counted that way. There is a rationale to it that you may not agree with.

r101958's picture

Not correct. They just started exluding these folks from this particular calculation last year. There were never 99er's before this time. Tyler posted on this before and you might also check

ratso's picture

THanks for that info.

monkeyshine's picture

So what is the best way to trade this?  Short DJIA or S&P500  into the close on Thursday?  If it is an up day all the better, right?  Friday night being the start of the Jewish holy day of repentance, many traders may not be working a full day.  Some traders should take 2 days to repent. 

Conrad Murray's picture

Wonder if it takes into account people changing their withholdings? Claim 8 and at the end of the year send Uncle Shine a big FUCK YOU letter.

High Plains Drifter's picture

cnbc tried to continue the lie about germany coming to the rescue this morning but kyle bass gave them what for when david faber tried that shit with him...........ha ha ha ......i wish kyle bass was a guest blogger on here. that would be interesting....

HelluvaEngineer's picture

I find it interesting that we're in the middle of a retard rally and my short positions (junk: ex - CMG, BIDU, REK) are all green.  Something stinks more than usual.

firstdivision's picture

This explains today's surge on vapor volume and no news.  Some people want better shorting positions. 

richard in norway's picture

plus we will get the pre anouncement spike to decieve small traders that someone is trading on inside info

Duke of Con Dao's picture

Comic relief: here's a vid mash of White Shirt goon Commander 'Jaws' Dudley at Brooklyn Bridge protest 

added feature: last 5 seconds - Ben Bernanke's lost brother - separated at birth...

High Plains Drifter's picture

wow that guy looks anal rententive. he probably thinks he is above, what he thinks is, the  rabble in the street  

Kali's picture

He looks like an SS officer or concentration camp commandant to me.  What a fucking fat pig. (quite literally!)

LRC Fan's picture

Economic data is meaningless, according to none other than Zero Hedge itself.  Yet post after post is all about economic data.  Funny. 

WonderDawg's picture

ZH recognizes that it's readers like to see the data minus the MSM spin. Regardless of whether it is meaningless or not, we still like to know what kind of swill the mainstream is being fed.

B9K9's picture

Actually, it doesn't really matter what (mis)information is being broadcast to the masses. Either the global economy is able to generate additional credit (ie expand its balance sheet), or it doesn't. If it does, the status quo retains its power, regardless of any information to the contrary. It it doesn't, then the status quo will lose its power, regardless of any information to the contrary. Pretty simple, really, which is why most of this hyper-information flow is irrelevant.

(This explains the outright corruption & fraud - they win, there will be no repercussions. They lose, and it doesn't matter what additional charges are brought.)

It really gets back to growth - organic or superficial, either will do, it really doesn't matter. Growth, or the prospect/lack of such, is the core driver behind your 'fractal' social emotions. If it was announced that an oil field 2x the size of Ghawar was discovered, ZH could shut down the same day. Re-iterative fractal optimism would explode to such a degree as to make the 20s & 00s look like the GDI.

Sadly, however, there are no add'l Ghawar's, so the PTB is only left with superficial attempts at expanding the balance sheet. Tyler, Mako, Trav, LH and a a few other astute posters have repeatedly stated variations of this fact on numerous occasions. Tyler has said it simply doesn't matter what the asset base is, as long as it increases. (Mako's variation was it can't/won't, so we're all doomed.) Trav has pointed out the lack of organic growth, while LH said that Fed will never stop financing

If you dial back 10+ years, this of course was the driver behind CDO/CDS - absent real organic growth, the banks had to constantly split & re-split the pie in order to generate new fees and expand asset values. We are, of course, at the same point with the EFSF and other rumored/proposed programs. At their heart, they all the address the same exact thing: the balance sheet must be expanded through increased leverage.

If one understand this extremely simple concept, then everything else falls into place.


LRC Fan's picture

Yeah I'm upset because I can't find any silver anywhere to buy. 

tmosley's picture

You're not looking very hard, then.  Silver spot is down less than 50% from the peak.  Not even appraoching zero yet.

SheepDog-One's picture

Well LRC Fan CNBC sure seems to find Zerohedge relevant, as they bristle and get their neck feathers all rustled up over what is said here.

LRC Fan's picture

According to people here, no one watches CNBC anymore, so who cares?

RSloane's picture

I've never seen anyone here claim that no one watches CNBC. A lot of us here do. Its one of our sources of entertainment.

JohnG's picture

I only watch for Kayla and Mandy...otherwise it's muted.  Plus I get it from Thinkorswim, because I tossed the television out a window about 5 years ago.

tmosley's picture

Damn, more strawmen.  You have quite a cottege industry here.

No-one has said "No-one watches CNBC anymore".  They said "no-one intelligent watches CNBC anymore for anything other than entertainment value".

But you're so mad you can't even understand simple distinctions.

Quantum Nucleonics's picture

I'll bet MOST of the people here have CNBC on most of the day.  That said, during the Cold War, the CIA read Pravda every day.

Dr. Engali's picture

Man you are one of the worst trolls ever. Maybe you should take some trolling lessons from Robo.


Tyler you left the front door open again. Another pesky troll wandered in.

SheepDog-One's picture

So LRCFan what kind of content would you like to see on Zerohedge then? Spongebob cartoons? Gay midget porn?

LRC Fan's picture

I just don't see the point.  Either the data is meaningless, or it's not.  If it's meaningless, why bother reading/writing/commenting on it?  Obviously it means a lot if ZH can't go half a day without posting about it.  I have no problem with ZH posting about the data but to call it meaningless is just another in a long line of ZH hyperbole (along with "Goldman buying every oz of gold", "Gold about to break above $2k any day now" and many others). 

RSloane's picture

Then don't read ZH. Simple.

leftcoastfool's picture

If the content bothers you that much what the fuck are you doing reading it?  Go away and chill out...

Joe Shmoe's picture

I read it to see what the herd is saying.

DaveyJones's picture

come and play... everything's NOT ok 

you're right about one thing, you "don't see the point."

fswalker's picture

+1 . ZH manages to put a negative outlook on every angle of every story. Up till now it was backed by the gold bugs with the shiny metal reaching new highs on a daily basis (ever heard of a bull rally?), however since its pull back from its artificially inflated highs (hey every market is rigged right?) the posts of this wealth preserving miracle have stoped. While I agree that there is doom and gloom out there and XAU might reach higher highs, other than the carefully disacted analysis reports, the one sided argument and reporting style of ZH can be a drag.  I only see upbeat comments once gold ticks up a dollar or two. Quite funny really.

Joe Shmoe's picture

Lies, damn lies, and statistics.

"i.e., if less tax withheld, then less people employed"

Or... less withheld.  Can't employees choose whether and how much to withhold?  If so, maybe people need cash flow more than withholdings.  Maybe all this stat says is that people are withholding less.  And the causation conclusion is flawed.


darteaus's picture

Tax receipt withholdings more accurately reflects unemployment/underemployment/gross labor than any other stat - thus its disuse.

Pretorian's picture

I am betting on positive surprise and short squeeze.

bigdumbnugly's picture

until the revisions come out.

mayhem_korner's picture

$2 Trillion in LSAP

When did toxic waste become an asset?

BTW, what' the half-life on the threat of QE?  I think the Bernank can blue-up his 'nads a lot longer...

SheepDog-One's picture

Thats some prime choice toxic waste assets right there!

mayhem_korner's picture

You makin' fun o' my sheep, sheep?

The Deleuzian's picture

Is there even a correlation between the employment #'s and the equity markets anymore?  That's assuming they're even slightly accurate...Which is by the way, going pretty far!!