Bob Farrell, Merrill Lynch’s now retired dean of Market Strategy, used to say “News doesn’t drive the markets, markets drive the news.”

That’s worth keeping in mind in light of the recent slew of bad news: Bleak forecasts from Cisco (CSCO) and General Motors (GM), slumping sales at retailers, state and municipal budget shortfalls.

Then, there is the mother of all economic indicators, today’s Non-Farm Payroll report. Bloomberg notes that BLS “will probably report that the jobless rate climbed to a five-year high of 6.3 percent in October” and that  “Payrolls shrank by 200,000 workers, the biggest decline since the start of the Iraq War in March 2003.” The Employment Situation report is released at 8:30am today.

There are a few things that you should keep in mind when that report comes out:

1) Any given report is irrelevant. However, the employment trend is very important. Are jobs being created or lost? Are recent changes accelerating?

2) The BLS headline number for Unemployment — U3 — tends to under-report the full extent of job losses; A better gauge as to the health of the labor utilization is the broader U6;

3) Watch wages & income as well as changes in the hours worked. We’ve seen a mass “stealth layoff” as companies cut people back rather than fire them. Each of these may hold clues as to  further pressure on the consumer;

4) The Birth Death adjustment continues to overstate the amount of new jobs created, especially in the finance and construction industries;

5) Reporting monthly changes in a labor market of a 140 million people with any degree of precision in real time is a difficult, thankless task, highly subject to revision.

Regardless, we should expect an acceleration in job losses for the next 6 months as the worst of the credit crisis shows up in the data.

Unfortunately, the NFP we have seen so far only reflects the mild recession we have been in since January. As the economic contraction deepens, and prolongs, NFP is only going o get worse — potentially, much worse. That’s a given. The question for investors is how much of the weakness, and coincident earnings recession, has been fully priced into the markets.

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Previously:
Undercounting Under-Employment (November 2008)

http://www.ritholtz.com/blog/2008/11/undercounting-underemployed/

Rosy Jobs Rate Has Thorny Underside
RealMoney.com 2/9/2005

http://www.thestreet.com/p/_rms/rmoney/barryritholtz/10208148.html

Category: Economy, Employment, Markets, Wages & Income

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

8 Responses to “Waiting for a FUGLY Employment Situation Report”

  1. VennData says:

    The Birth Death model is so cockamamie, in addition to Obama/Biden, it’ll count McCain/Palin as getting new jobs.

  2. LOL

    Actually, they both already have jobs — they were each applying for a promotion, which they did not get . . .

  3. Bruce in Tn says:

    Agree with what you say this morning Barry, and the huge question is how long and how deep this lasts, again since the entire world has decided to go on strike.

    On another note, I found out where the bailout out money that we’ve spent on companies like AIG has gone. People were beginning to wonder where the money went. You remember, like Pepsodent..”You’ll wonder where the yellow went , when you brush your teeth…..”

    Turns out they have just been burning it. That’s right, like leaves in the fall.

    AP
    Ford announces $129M 3Q loss, burns $7.7B in cash

    http://biz.yahoo.com/ap/081107/earns_ford.html

    Paulson and Bernanke were seen in Michigan with leaf rakes just burning piles of it.

    Now I can sleep better knowing……

  4. The ISM employment indexes and the ADP data have sent a similar message of very weak labor market conditions. This implies bad payroll and unemployment numbers. But keep in mind that the stock market has sold off significantly over the past two days on the back of renewed concerns about the dismal economic conditions. Some of the expected poor NFP stats may therefore already have been discounted.

    http://www.investmentpostcards.com

  5. grumpyoldvet says:

    I’m just amazed at all the sudden “fiscally prudent” characters showing up on CNBS. This AM had some guy from the Pete Peterson Group “advising” President-elect Obama that he can’t do the things he wanted/promised to do as it is fiscally impossible. While I agree in principle, I wonder how come none of the “fiscal advisors” said anything over the past several years. Seemed to me they all agreed with Dick Cheney’s statement, “Ronald Reagan proved deficits don’t matter”.

  6. Bruce in Tn says:

    One other thing…this business of the greatest transfer of wealth of all time, from us to our government who, with these massive bailouts, has created a generational debt for all to pay. (This is what I think is going to happen). The debt has to be paid, and we taxpayers are about to get it..(by not letting zombie companies die a natural death..)

    Well, it has started in spades in California. The governator will now cause Los Angelenos to pay a 10.4% sales tax next year, ever higher, and this on top of their huge income tax bill for citizens of the state.

    http://capoliticalnews.com/s/spip.php?article1009

    Guv Demands Sales Tax Raise of 1.5%—NOW

    Perhaps the huge bailout was the right idea, and continuing to add layer after layer to it, also may be right…but I know we won’t get out of this without a massive shift of our individual resources to the government. A huge transfer of wealth…mark it in ya book…..

  7. Mr Sun says:

    NFP results have most likely already been factored in. One week outlook for the SPX calls for a sharp bounce to the 1000 level. Also, shame on Berlusconi…

  8. Winston Munn says:

    Bruce in Tn said, “One other thing…this business of the greatest transfer of wealth of all time, from us to our government who, with these massive bailouts, has created a generational debt for all to pay.”

    As the Bard of Avon might have said,

    Oh, what mess we realize
    when first we start to socialize