This data really doesn't need much explanation. Here are the facts: so far in 2013:
The ratio of waiters and bartenders to manufacturing jobs: 10 to 1.
For the third month in the last four, US Factory Order growth missed expectations. In fact the last four months have seen the biggest plunge in a year. Adding to the disappointment for the 'manufacturing renaissance' hopes (despite proof in the payrolls data that it does not exist) is the fact that New Orders (ex-transports) dropped 0.4% (its worst in 3 months) with non-durable shipments down 0.6%.
One of the overlooked components of today's NFP report is that in July the one industry that posted a clear decline in workers was none other than Construction, the sector which is expected to carry the recovery entirely on its shoulders once Bernanke tapers and ultimately goes away, which saw a decline of 6,000 workers: the largest job loss by industry in the past month. Perhaps there isn't quite as much demand as some would propagandize? But most notably, and disturbingly, is that the industry with the most job gains in July was also the second lowest paying one: retail, which saw an addition of 47,000 jobs: far and away the biggest winner in the past month. The worst paying industry - temp jobs - rose by 8K in July following a revised 16K increase in June. And the reason for the swing in July: the plunge in another low-quality job group: Leisure and Hospitality, which increased by only 23K in July following 57K additions in June.
The reality of the jobs number's apparent 'good' news (unemployment, yay!), and dismal news (part-time workers and less-than-expected jobs created) was instantly met by most markets (except stocks which appeared to have baked all that in and are losing ground) with a 'Taper-off' reaction. Bonds (10Y -12bps post-NFP) and Gold (+$28 post-NFP) are the headline-makers (along with silver) but the USD's 0.6% plunge dwarfs the 0.25% gain post-FOMC. All-in-all, post-FOMC we are net: S&P +12pys, 10Y Yield -5bps, USD +0.25%, WTI Crude +2.6%, Gold +$5.
So much for the trends of beats: July nonfarm payrolls +162K missing expectations of 185K; June was revised lower to 188K and the unemployment rate dips from 7.5% to 7.4%. The rate dropped because the civilian labor force declined from 155,835 to 155,798 or 37K, driven by an increase of people not in labor force to 89,957 - just shy of the all time high. This also means that the labor force participation rate once again ticked down to 63.4% from 63.5%. What is worse however is that the change in average hourly earnings dropped -0.1% on expectations of a 0.2% increase and down from the 0.4% increase last month. Those part-time jobs are finally starting to bite.
Today's sellside NFP estimate, from top to bottom:
- Deutsche Bank 225K
- Goldman Sachs 200K
- UBS 195K
- Bank of America 180K
- Barclays 175K
- JP Morgan 175K
- HSBC 165K
- Citigroup 175K
Consensus is 185K, with a low of 87K, high of 225K (LaVorgna), June printing at 195K and May 165K. The Unemployment Rate Consensus is 7.5%, with a low 7.4% (LaVorgna), high 7.7% and June at 7.6%, May 7.5%.
A week that has been all about acronyms - GDP, PMIs, FOMC, ECB, BOE, ADP, ISM, DOL, the now daily record highs in the S&P and DJIA - is about to get its final and most important one: the NFP from the BLS, and specifically an expectation of a July 185K print, down from the 195K in the June, as well as an unemployment rate of 7.5% down from 7.6%. The number itself is irrelevant: anything 230 and above will be definitive proof Bernanke's policies are working, that the virtuous circle has begun and that one can rotate out of everything and into stocks; anything 150 or below will be definitive proof the Fed will be here to stay for a long time, that Bernanke and his successor will monetize everything in sight, and that one can rotate out of everything and into stocks, which by now are so disconnected from any underlying reality, one really only mentions the newsflow in passing as the upward record momentum in risk no longer reflects pretty much anything.
- Low Wages Work Against Jobs Optimism (WSJ)
- Tourre’s Junior Staff Defense Seen Leading to Trial Loss (BBG)
- Russia gives Snowden asylum, Obama-Putin summit in doubt (Reuters)
- Fortress to Blackstone Say Now Is Time to Sell on Surge (BBG)
- Brazil backs IMF aid for Greece and recalls representative (FT), previously Brazil refused to back new IMF aid for Greece, says billions at risk (Reuters)
- Google unveils latest challenger to iPhone (FT)
- Swaps Probe Finds Banks Manipulated Rate at Expense of Retirees (BBG)
- Academics square up in fight for Fed (FT)
- Potash Turmoil Threatens England’s First Mine in Forty Years (BBG)
- Dell Deal Close but Not Final (WSJ)
There is one vitally important number that everyone needs to be watching right now, and it doesn't have anything to do with unemployment, inflation or housing. If this number gets too high, it will collapse the entire U.S. financial system.
The optics of the GDP report were 'positive' at first blush, but not upon closer inspection. Growth in the second quarter was better than expected. Recovery period growth was revised up slightly. And the Great Recession, while still catastrophic, now shows a modestly smaller decline in output than it did in the pre-revised data. But underlying GDP growth is frustratingly slow. And growth rates in the very recent past were revised lower. But as Credit Suisse notes, this only deepens one of the unsolved mysteries in US data: buoyant payroll job gains of about 200K per month on average in 2013, juxtaposed against consistently tepid increases in real GDP. This is not a typical pattern. It seems our concerns over Obamacare's impact (and the delayed impact of the sequester) are being ignored by the Pollyanna policymakers for now (though they are well aware of the 'born-again jobs scam').
When we as a species use language to communicate and engage with one another, we have a certain understanding that certain words mean certain things. That is the entire purpose of language, effective communication between human beings that can be easily understood. As a result, we should be able to assume that when government bureaucrats utilize words that are commonplace within society, that these words represent specific commonly understood meanings. That would be a huge mistake. Jameel Jaffer and Brett Max Kaufman of the ACLU have compiled an excellent list of some commonplace words used by the NSA to mislead us into thinking they aren’t doing the bad things that they are actually doing. Words such as “surveillance,” “collect,” and “relevant.”
It seems that just like US equities, a rising price for the booze in American's local bar has done nothing to stymie demand. As Bloomberg Businessweek notes, Americans are increasingly ordering the 'good stuff', buying more from the top-shelf than drinkers elsewhere. Among the biggest alcoholic brands, the US is making up a far greater proportion of profits than revenues (e.g. for Smirnoff Vodka, North America was 40% of profits and 33% of sales) as it seems one should never underestimate the consumer confidence of a 'classy' drunk. Beer sales may have fallen 2% but revenues for InBev (for example) rose 1.5% and profits almost 3% - so it seems, at a time of great uncertainty in the US and middle-class 'better bargains', alcohol providers are 'preying' on that stress relief demand.