Today's "Max Pain" - A Stronger Than Expected Non Farm Payrolls Report

Tyler Durden's picture

While normally quite absurd, we do have to admit that last month, Deutsche Bank's Joe LaVorgna was among the analysts closest to the final actual number, which came in far below consensus. As such we give him the benefit of the first forecast: Joe LaVorgna is expecting a headline/private payroll increase of 75k/80k respectively. The market is looking for 100k/110k. Unemployment is expected to hold at 8.2%. The irony today is that max pain is a far stronger number, which in light of some very recent economic news, can not be ruled out (see Nick Colas' discussion below): if indeed NFP rises by well over 100,000 the market will have to push back its prayer that the NEW QE will come in September into 2013 as Bernanke will not do another easing round just as the presidential election approaches. What are some others thinking? Here is what Bank of America says.

We forecast nonfarm payrolls to increase by 85,000, slightly higher than the pace of job growth in June. Initial jobless claims, which are the best leading indicator of job growth, have been noisy, given distortions from auto retooling. As such, it is difficult to get a clean measure of job cuts during the month. In addition, the ISM manufacturing and services surveys for July have yet to be released, which are an indication of how employers view employment trends. As such, there is less information available this month for forecasting payrolls. We, therefore, turn to our assessment of corporate behavior, which has appeared to turn lower. Earnings reports revealed more cautious corporations and sentiment surveys have deteriorated. 


We expect the government will continue to shed jobs. We forecast the three-month average drop of 15,000 in June. Private payrolls will, therefore, be up 100,000. In June, retail trade and health services were surprisingly weak. We, therefore, look for some bounce back in July, or perhaps a revision. Elsewhere, we expect the trend toward temporary hiring to continue. On the downside, construction hiring should remain weak and manufacturing job gains should slow, reflecting the weakening in production.


We forecast the unemployment rate to hold at 8.2%. After two months of gains in the labor force participation rate, we forecast a modest drop. This reflects discouraged workers dropping out of the labor force and the steady aging of the population. Looking further ahead, the labor force participation rate should partly reverse as the economy heals and discouraged workers return. 


With slow job growth and high unemployment, we expect wages to remain soft. We forecast average hourly earnings to only increase 0.1% mom in May, following the unexpectedly solid gain of 0.3% in June. This will push the YoY rate back down to 1.7% from 1.9%. In addition, we look for the work week to be unchanged, at 34.5.

What is curious is that for those who actually track tax withholdings, the data actually improved in the past month, confirming that if anything the likelihood is precisely of a Max Pain outcome, as more jobs are added than expected.

Here is ConvergEx' Nick Colas with his take:

  • After a swoon lasting several months this year, income tax and withholding payments to Treasury grew by 4.6% (adjusted for differences in calendar days) from July last year.  This comp is the same whether you include or exclude a large but often overlooked item on the Daily Treasury Statement entitled “Taxes not withheld” – those monies submitted by commissioned sales people who do not have their taxes withheld - real estate agents, for example.  This 4.6% growth rate is the best result since March 2012 (when the reported number of U.S. jobs added was 154,000. 
  • The accompanying chart shows that there is a clear correlation between the reported jobs data and the withholding/tax receipts. The general trend is that both peaked early-to-mid 2011, had a bit of a surge again in early 2012, but have been trailing off since then.
  • We scratched our heads over the unexpected strength in July 2012, and the only explanation we can really forward is that North American automobile production is up 2.8% in this July over the same month in 2011.  July is customarily a very slow time for the auto industry when it comes to running their domestic assembly plants.  Until a few years ago, it was common practice to shut down every plant in the country for the week of July 4th and the subsequent seven days  as well.  Now, with every auto company trying to maximize capacity utilization, July is increasingly a normal working month.  In July 2012, for example, North American automobile assembly plants churned out 868, 437 cars and trucks, up 2.8% from last year’s production.  Keep in mind that the auto industry works on a just-in-time basis, so when car plants operate, it means every supplier in the system has to run their plants as well. 

So are we seeing the U.S. economy get a “Second wind” with this positive tax/withholding data and its implications for the domestic labor market?  I would love to say “Yes,” but let’s fall back to “That would be nice.” If it was the auto industry that helped the Treasury data, then remember that yesterday’s monthly sales data was a pretty flattish 14 million unit run rate.  That’s where the industry has been selling for much of 2012.  And recall that dealer inventory levels are pretty healthy, so incremental production will need incremental sales later this year.

The larger issue, and the one I will close on, is what a better Jobs Report will mean to the Federal Reserve and the U.S. stock market.  Putting the problems in Europe on the side for a moment, this issue of economic strength/Fed action is the single most important question facing investors in U.S. equities.  For weeks, the roadmap has been clear:

The Fed needs to see a deteriorating economic picture in order to launch a new round of bond    buying/liquidity operations (AKA QE III).  The sooner we get that data, the sooner markets can rise again, since the last four years of market action shows that equities only increase in value during periods of Fed “QE.”

If our analysis is correct, the Fed and investors will face a bit of a quandary.  My sense is that one good number is actually not good news for stocks, since the entire economic “Recovery” from the 200-2008 Financial Crisis has been studded with short bouts of acceleration followed by relative stagnancy.  The Fed needs a weakening labor market to give them air cover for another round of QE, especially so close to the November elections.  One good Jobs report is enough to put them on the sidelines for the September FOMC meeting – not good news for an impatient market thirsty for more Fed liquidity

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Neethgie's picture how nfp guesses are calculated, featuring bernanke and giethner 

TruthInSunshine's picture

Weak NFP=QEx needed (despite only doing harm by breaking markets further)

Strong NFP=Seasonal Factors artificially lifted payrolls in transitory fashion



Heads:    banksters on welfare teat win and taxpayers lose.

Tails:      taxpayers don't win and banksters on welfare teat don't lose.

GetZeeGold's picture



Phasers on max pain.......let's proceed.


AlaricBalth's picture

The "Max Pain" is experienced every morning when the unemployed and underemployed wake up and must figure out how to feed their children as the banks continue to push them out of their homes in the greatest asset grab in history.

bdc63's picture

Here's what the CNBC economic clowns are guessing:


Austan Goolsee says 65,000

Mark Zandi is at 123,000

Steve Liesman at ?

Diane Swan at ?

TruthInSunshine's picture

Only because an alleged 150,000 'new jobs' monthly is required for BLS goal-posted unemployment to NOT rise, Abby Joseph Cohen is at +750,000; Krugman's pet rock, Joe Weisenthal is at +2,305,000

fonzannoon's picture

Fonzanoon is at 135k with prior month revised up. I placed 4 circles on my lawn this morning and put 4 different payroll numbers in them. My dog crapped in the 135k circle.

By 10am Knight Capital will be miraculously saved. Spanish yields will reflect that Draghi did have success after all and QE will not be needed anytime soon here.

Granted if my dog crapped in the 65k circle I would have a totally different take. I wonder how the rest of these economists get their figures?

Dr. Engali's picture

That was pretty funny. Probably as good as anybody else's method for their guess.

oogs66's picture

I do not think QE is that important and by end of day we would be higher on a good NFP number.

fonzannoon's picture

Yeah I agree oogs. I used to be in the QE had to come camp. I don't think it's coming anymore and for the time being gravity has been suspended in the markets. Maybe they are doing something behind the scenes but that would be unscrupulous so I doubt it....

GetZeeGold's picture QE. How are we paying for that stuff again?


fonzannoon's picture

I think they found out it's just easier to print the money and hand it out out without big announcements that get feces thrown in their direction for doing it. To be honest I don't know why they did not think of it sooner. Just my 2 cents.

GetZeeGold's picture QE. That sound you're hearing is not the high pitched whine of printers on full.


These are not the droids your looking for.


oogs66's picture

thanks, and so far, we look to be right.

q99x2's picture

Green shoots.

MillionDollarBoner_'s picture

...and that's bearish for Gold and Silver, right?

fredquimby's picture

#nfpguesses on the Twit.

121K from @spotgoldprice


Gigantor's picture

So, it seems our entire economy is based on hopes that the Fed/Govt. provide failed stimiulus, stimulus that won't work but will be deployed only when things get bad enough?


So the market is basing it's swings downward on "good data" because that means the free printed money to the banks won't be on the way?

And the market goes up on bad data because the banks etc will get stuffed full of free easy cash to the detriment of "normal" people?


This shit is really, really fucked up.

Beam Me Up Scotty's picture

"This shit is really, really fucked up"


GetZeeGold's picture



We must be ready for full tilt retard then....unless I've missed a step.


MillionDollarBoner_'s picture


It the normal functioning of a healthy capitalist system.

You need to go do a PhD at Princeton or an MBA at Harvard Business School - then you'll get it ;o)

Hype Alert's picture

Correct.  Much like in 1999 & early 2000 when people were saying P/E didn't matter anymore.  In the end, it's all about the earnings and balance sheet and right now the global balance sheet looks like hell.

bigwavedave's picture

Green baby GREEN

Monedas's picture

Bernanke is to socialist economic husbandry as Piers Morgan is to multi-cultural steward !              Monedas            1929          Comedy Jihad Viper Venom Antidote 

GetZeeGold's picture



Piers Morgan


Are we incapable of growing idiots in this country.....did we really have to outsource?


Dr. Engali's picture

It should be interesting. A bad print and the market rises but Romney has ammo against Obama. A good print the market falls but Romney has less ammo against Obama. I wonder what the ministry of truth will decide today.

jjsilver's picture

The NFP like all other data is totally rigged


All public servants honor your oath or immediately step down.

5 USC § 3331 - Oath of office

5 USC § 7311 - Loyalty and striking

BeetleBailey's picture

So...bad news is good, and good news is bad, and kinda good is kinda bad...but maybe good...and kinda bad is kinda good.

Copy that......switching to guns...too close for missiles

Neethgie's picture



ThunderingTurd's picture

Congratulations Bernank, you have destroyed price discovery in all assets.

Meesohaawnee's picture

just keep things in perspective.. what the market did after last months horrible jobs number. I view this just as a silly media event. bad news green. worse news more green. good news SPY 1500 ,aapl to 1000. really ramp the futures up? come on at least you make it look not manipulated if things were just flat and then we wait for the data. . Or someone is frontrunning and knows something. regardless. two weeks from now its a yawner. Data means nothing in the aggregate ..just grown so tired of this. every moring the manipulation gets more and more obvious.

Byte Me's picture


Good NFP - QEx deferred -- Risk OFF

Average NFP - ditto

Poor NFP - Risk Off -- Defensive dollar positive.

Crap NFP (neg print) -- Panic - Defensive dollar positive.

What's not to like (spikes excepted)

Meesohaawnee's picture

regardless its all become so silly..i get more laughs out of this  than the cartoon channel.

Snakeeyes's picture

And U6 rises to 15%. 

And a print of 163k when there are more than 12 million unemployed really sucks!


Venerability's picture

Posted on the latest silly Gold-bashing thread at Seeking Alpha:

The Them-Versus-Us nonsense will stop - totally - forever - when those who manage this sector start to promote it the way it NEEDS to be promoted in a Post-Classical Dow Theory world, without Empire Currencies of any sort.

Gold is Growth. It is a Growth sector.

It represents the inexorable diversification of the world's reserves away from ANY Empire Currency and towards fair and neutral and balanced currency - and commodity - baskets based on world economic activity and world trade.

And even more importantly, it represents the inexorable - and despite everything, steady - emergence of a true bourgeoisie - a consuming middle class - in that one-half of the world which has not had one up until now.

That one-half of the planet corresponds exactly with those countries and regions which have loved and respected the Monetary Metals from the days of the cavemen: China, India, the rest of Asia, the Middle East, Africa, and Latin America.

The stranglehold of the "Austrian" viewpoint in this sector - a viewpoint which is negative and obstructive and elitist and downright scary to many - MUST now be replaced by the Gold is Growth viewpoint, which the Gold-loving portion of this planet shares, but which only a few brave commentators in the US or UK, like me, have consistently put forth.

In fact, the way to turn the populaces of the US and UK into Gold supporters is absolutely clear: We need to get Progressive economists and leaders on our side. We already have a decent proportion of Conservative economists and leaders on our side, but we need the Progressives more than ever.

And since Gold in the Gold is Growth scenario represents Fairness and Balance and Neutrality and Consensus, rather than the stranglehold of Elitism which depending on any Empire Currency automatically causes, Gold is BOTH a Conservative tool and a Progressive tool.

The Progressives SHOULD have enthusiastically embraced Gold a long, long time ago.

It is now the moment to persuade them strongly to do so.

Venerability's picture

There are Naive Ones and Sophisticated Ones within every group.

I strongly believe the Best and the Brightest in terms of pure intellect - not to mention sophistication - tend to be down-the-middle Centrists who seek conciliation and try to build consensus.

In a purely strategic sense, those of us who support the Gold sector in the US and UK already have influential Conservatives on our side - and probably too many NON-influential Libertarians.

Those we most need to "convert" are influential Progressives.

Imagine if tomorrow, Rich Trumka embraced Gold publically.

Or, wonder of wonders, Paul Krugman.

Frankly, I've always wondered why Gordon Brown, as intelligent as he is and as much a leader now of the "West-East Conciliation" movement, did not publically denounce his prior bad actions towards the Gold sector and embrace it with the "No More Empires or Empire Currencies" rationale. 

disabledvet's picture

Production has been getting "insourced" from Europe for years...something that is accelerating with the collapse of the EZ. Throw in a MASSIVE all out war in the ME (that's the Middle East in case somebody out there was wondering) and production continues on that front as well. (literally a Front actually.) the pace of technological advance marches on...I don't know how you measure a "rate" of that...apparently there is one however "and the West Coast has that." as such demand for capital is STRONG. Don't know how GE is doing today...I imagine "pretty damn good" tho. I'll look when I take off my uniform at the close of business today.