In addition to today's broad economic disappointment that once again nobody could have foreseen (save for a few comments from us back in January predicting just this most recent contraction), another incrementally negative development which will force the spin doctor to earn their overtime is the observation that over the past year at least 1 million unemployed have now officially fallen off the 99-week gravy train, and exhausted their entire jobless benefits. Luckily, for 10% of the US population there is the magically levitating S&P. For everyone else, there are foodstamps (for now).. and of course the worthless dollar. And in other news, Peter Tchir looks at the recent deplorable jobless claims numbers (wonder why you aren't hearing much about today's initial claims on CNBC? that's why) and comes to the following logical conclusion: "Currently expectations for next Friday's NFP is 183k. I think the number will be 160k, but in this world it makes no difference since that will encourage belief in QE3 which will trigger dollar weakness which will cause stocks to go up. Since its hard to go long stocks with this logic, it leaves me looking at precious metals." Tchir is not the only one doing so.
But first, the WSJ explains why quietly one million have fallen off Uncle Sam's weekly pittance:
Roughly one million people were unable to find work after exhausting their unemployment benefits over the past year, new data released Thursday by the Labor Department suggests.
The back-of-the-envelope datapoint is yet another sign that the labor market remains weak, economists said.
About 8.2 million idled workers were receiving unemployment benefits as of the week ended April 9, the Labor Department said in its weekly jobless claims report. That compares to about 10.5 million individuals at the same time last year, a decline of roughly 2.3 million people.
Since the federal government estimates that the economy created 1.3 million jobs during the 12 months ended in March, economists said that slightly less people probably fell through the cracks and couldn’t find employment.
“That leaves, roughly speaking, about one million people who have exhausted their unemployment benefits and have very likely not yet found a job,” said Joshua Shapiro, chief U.S. economist at MFR Inc. in New York.
However, as long as all these recently subsidy-free individuals have a mortgage which they are not paying, and which the banks are not enforcing payment on as that would accelerate mark to market in an insolvent world, we are not too worried about their prospects, for now.
We will be worried soon, when all the broken wheels supporting the zombi economy finally fall off (and god help us if Bernanke really does not do QE3).
From Peter Tchir:
Jobless claims were clearly a big miss. Not only were they worse than expectations 429k vs 395k, but it was the worst week since January, and is confirming the rising trend in the 4 week moving average. We will likely hear even less about the moving average next week, as a nice 385k print drops out of the average.
Over the past year, we have argued repeatedly that jobless claims have understated the problems in the labor market. We maintain our view that structural changes to the labor market have helped keep the claims number down. The mere fact that fewer people are working has reduced the pool of people who can be laid off.
Employers are far less likely to layoff people who are working part-time or with minimal benefits. It has been far easier to cut back on hours rather than lay people off. The workers accepted this given the bleak job market, and the employers liked the free option of keeping these workers around in case their business rebounded.
Every disappointment in Non-Farm Payrolls has validated our theory. The old models have consistently predcited or hoped for better reports than we got. Although the numbers have been positive since October, we have not seen a big blow out number, and many have been downright weak - especially considering we got QE2 and the big tax 'compromise'.
So, coming into the Christmas holidays, with QE2 flooding the system with money, tax cuts for the rich being extended, and payroll tax cuts for the lowly employees, it made sense to retain workers. Every employer had to hope that this was finally the long awaited turnaround. Since the workers were cheap to keep on the payroll, the cost of preparing for this big turnaround was minimal.
Well, guess what happened? That turnaround has stumbled. At the very least its not strong, and at worst, its completely fizzled and runs the risk of fading completely when the government spending is finally reduced. So employers, who held onto employees, for a long time are finally saying they just can't do it.
Maybe its in preparation of a slow summer season, a result of inventory build up, but its undeniable that many employers, who clung to the hope that business would pick up, are finally going through another round of reductions.
What about the vaunted small business job creation? Isn't the birth/death model showing job growth here? Sure, but its a model. I think the layoffs are coming more and more from small business. In small businesses, there really is a personal attachment. The consequences of laying of an employee, who may even be a friend, are more heartfelt, than for a large corporation. From talking to some small business owners, they were less likely to let someone go in this weak economic environment. They actually felt a responsibility to their employee. They worked hard to reduce hours, encourage the person to look for another job, but did all they could to keep them employed. They are now throwing in the towel. None of the momentum from October has carried through. They are seeing weakness again and are having to move into self preservation mode.
What about big companies? Aren't they 'all' reporting record earnings? Yes, earnings are great, but it seems like most have seen business slow a little, so Q2 guidance has been a little disappointing, and virtually all companies have expressed some concern about margins. If you are concerned about margins you aren't hiring.
So, we continue to believe that 429k report is worse than people want to make it sound (the old 450k rule of thumb is outdated), and this reversal is the positive trend is real and part of another wave of job weakness. Currently expectations for next Friday's NFP is 183k. I think the number will be 160k, but in this world it makes no difference since that will encourage belief in QE3 which will trigger dollar weakness which will cause stocks to go up. Since its hard to go long stocks with this logic, it leaves me looking at precious metals.