Get a grip, people.

I’ve been dying to tell that to the parade of sycophants, pundits and talking heads who have been aghast at the possibility of a really really bad NFP number today.

Here’s a newsflash, folks: The employment situation in the US is bad. Whether today’s 8:30 data release is a loss of 1 million, or a gain of 50,000, it really does not matter one teeny bit.

Why is that? Because it really isn’t news.

Look, we know the economy has been in the crapper for a year. We also know it has gotten appreciably worse over the past 4 months. The trend has been negative for 12 months, and its going to keep getting worse for a while. I do not expect to see any sort of jobs recovery until deep into 2010 at the earliest.

We know that the NFP data is not very precise; They are subject to very significant revisions. And, with a Labor Force of 154 million (including more than 10 million unemployed), the monthly data are actually minor numbers, a very small percentages off of a large set. A 500k job loss is still less than a third of a percent of the Labor force. Tiny errors in percentages that small lead to what appears to be outsized changes.

Blame it on the recency effect: The tendency to overemphasize the most recent data point in a monthly series. It is a foolish way to ignore the trend and give greater emphasis to today.

Why should this one report matter so much? The only thing that I can think of is it gives the next stimulus plan an impetus to get over a trillion dollars.

But what about that 250 point sell off on Wednesday following the ADP report?

ADP was the excuse, but the more likely reason was the overbought condition of the markets. Up 20% in less than two months, with more than 80% of the S&P500 index trading over the 50 day moving average combined to create as good a reason as any for the selloff.

Sure, at some extreme, the numbers become somewhat worrisome: 1 million plus is a scary data point. But in the scheme of things, as bad as this number will be today, it is also relatively meaningless.

Other than that, you can file this NFP away: Expect it to be really bad (perhaps even 700k+), and expect it to matter very little.

Category: Data Analysis, Economy, Employment, Markets

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.

19 Responses to “Counter-Intuitive View: Today’s NFP is Meaningless”

  1. Scott F says:

    Too much rationality for too early in the morning.

    Hey, if I wanted to have calm rational discussion, I would have put on NPR

  2. Bruce in Tn says:

    Yesterday’s number about the extreme avoidance of consumer debt probably was just as meaningful…

    http://online.barrons.com/public/page/barrons_econoday.html

    Consumer credit shrank at 16 TIMES what was predicted! And the debt to income ratio has dropped by 2.5% in just 4 months! This is a massive repudiation of credit, for whatever reason…and a capitalist system lives on credit..

  3. VennData says:

    Seems to me, if the stimulus plan hires every one of these unfortunate people who are unemployed to house sit one of our empty houses, we may have the makings of a nice gov’t program.

  4. lg71050 says:

    This hyper-ventilating results not only from the recency effect but also from the media environment that demands a crisis and stokes the fears to keep viewers entranced. Look at CNBC this morning just prior to the NFP release. They’ve assembled an entire “task force” to report, analyze and nitpick these numbers and are counting down like it’s New Year’s Eve. “The moment of truth!” they’re calling it. Some interesting studies could be done of the effect of media on this and other crises.

  5. ben22 says:

    Barry I agree, point was just made about the timing of Obama’s talk yesterday on CNBC, if the number is bad, which as you say, we all expect it to be, it helps reinforce the need for large stimulus, nothing more.

    That said, I only saw it for a second but it looked like the top bullet pt. on this stimulus agenda was to “create or SAVE 3 million jobs, 600k of which I’m to understand would be govt. jobs.

    I find it interesting that in a quiet way government expansion is well at work.

    Also, how many, brokers for example, that just lost a job are going to jump right in and start building roads and bridges. I agree that stimulus is needed, but it is certainly unclear as to what the ultimate impact will be. How many brokers could even survive in a job like that? I thought the exchange in the video’s section on this topic was good.

  6. dead hobo says:

    br said:

    I do not expect to see any sort of jobs recovery until deep into 2010 at the earliest.

    comment:
    ————–
    True, but the jobs recovery should include meaningful jobs that involve productivity. I don’t want to see a recovery that uses the work product of criminal financial professionals as stimulation. Rebuilding infrastructure would be a fast way to begin, similar to FDR and the New Deal. (screw you right wing crazies). Then, as oil prices recover, investment in suitable replacements can take hold.

    If Obama wants to run deficits to stimulate a recovery, then a lot of the cash should go towards infrastructure rebuilding and improvements. This type of repayment by future generations is ethical and a proper function of government. The Current Republican strategy of using deficits to support consumption and increase the wealth of those who need it the least should be treated as criminal.

  7. karen says:

    I encourage hardened bears to visit the BP Cafe to read Hard Truths.

    Barry, you’ve really outdone yourself lately. One ingenious post after the other : )

  8. Lars39 says:

    Very true, why the surprise every time employment numbers are reported, or a company reports lower earnings as expected, the Street acts as though it is news. Unless you work for the government, large numbers of employed consumers aren’t consuming because they’re scared of losing their job or at least losing more home value, earnings value or the specter of a “depression” as reported by many news outlets. The economy is bad, and therefore employment numbers will be bad for some time to come.
    This is not news any more.

  9. rww says:

    Karen, the “hard truth” is that consumers are suffocating under the mountain of credit that was made available to them over the last decade. Until wages rise, forget about growth.

  10. cuvo says:

    Lots of lucky folks who still have a job are now working 32-hour weeks and being made to take unpaid vacations. To read even the govt ‘massaged’ stats as anything but dismal is simply delusional.

  11. Mannwich says:

    From Calculated Risk:

    In December, the number of persons who worked part time for economic reasons (some-times referred to as involuntary part-time workers) continued to increase, reaching 8.0 million. The number of such workers rose by 3.4 million over the past 12 months. This category includes persons who would like to work full time but were working part time because their hours had been cut back or because they were unable to find full-time jobs.

    Sounds pretty much like “growth” is just around the corner.

  12. ben22 says:

    Karen,

    Did you buy any TBT?, I told you I was legging in a month ago, I’ve done all my buying. You warned the charts said 36, it dipped just below that. If you caught that you’ve done quite well so congrats.

  13. karen says:

    ben22, i did buy at 35.60 (only 1k shares) and sold it for just over 2 pts, 37.78. My target was 40, but i got impatient. Did a similar trade with uco, but got over 5 pts on a lot more shares… and i’m now a buyer of that again.

  14. deanscamaro says:

    I’ve been dying to tell that to the parade of sycophants, pundits and talking heads who have been aghast at the possibility of a really really bad NFP number today.

    Barry, I know you realize how many of the sycophants, pundits and talking heads are being paid to produce insightful, opinionated output, so they have to say something. Most of the time preparing that output is spent on devising something unique about the same data everyone else has and to make it look like they are the next great financial/economic wizard of the world. If the next set of layoffs would just focus on those sycophants, pundits and talking heads who contribute nothing of value, you would see a shocking number, larger than any company’s firings so far, and it would be the largest spike of this whole down-economy.

  15. VoiceFromTheWilderness says:

    BR’s been pointing out the dire situation in employment for years, and you’re right, this number by itself doesn’t mean much. It could be that this one of these ‘straw that broke the camels back’ moments, or to the dynamicists in the crowd, a bifurcation. Suddenly all that negative news comes into focus.

    Among other failings of the theory of free market capitalism: it requires that people know how to interpret data correctly — i.e. understand what the data are and what they mean. You can’t possibly be telling me that people draw confused conclusions from data can you? Conclusions that depend on preconcieved biases and non-linear relationships?

    People Do.

  16. Greg0658 says:

    from the story “the recency effect”
    yep like this one heard just about every other month “US Trade defict drops by 2 billion”
    instead of : this years trade defict at $765,924 million* May’07-May’08
    or US Government Debt now at $10 trillion – creating interest accruals to creditors in the amount of $___ monthly.

    Bruce in Tn Says: “Consumer credit shrank at 16 TIMES …. a capitalist system lives on credit”
    don’t worry to much … the United States Government is taking care of that slow spending … well – maybe worry is what we should do. (cause I’m in favor of the Obama $850 billion rescue plan).

    And I must admit – I don’t understand what happens to that trade debt at the end of the year. Does it move to the US Government balance sheet of dues? Or do we need to add up years and years of those trade deficits for the true figure?

    fyi from Wiki “The US trade deficit hit a record high of 817.3 billion dollars in 2006, up from 767.5 billion dollars in 2005.”

    * from: http://www.americaneconomicalert.org/ticker_home.asp

  17. Greg0658 says:

    I just realized I took 13 months of data and added it up.
    edit May’08 to April’07 = $705,650 million

  18. Jojo99 says:

    According to EPI, the number of un+underemployed is over 21 million!

    Link

    The unemployment rate rose from 6.8% in November to 7.2% in December, the highest rate in almost 16 years, and an increase of 2.3 points since the recession started in December 2007, when the unemployment rate was 4.9%. Over the past 12 months, 3.5 million workers have been added to the jobless rolls. There are now 11.1 million unemployed workers in this country.

    The increase in the unemployment rate in the first year of this recession is as much or greater than the total rise in the unemployment rate in the recessions of the 1990s and early 2000s.

    Underemployment, a more comprehensive measure of weakness in the labor market, skyrocketed to 13.5%–an increase of 4.8 points since December 2007, when the underemployment rate was 8.7%. The growth in underemployment has been largely due to an increase in people working part-time who want full-time jobs–up 715,000 in December and 3.4 million over the past 12 months.

    More than one in eight workers in the United States–over 21 million people–is now either unemployed or underemployed.

    But the real news isn’t that the large job loss numbers are a surprise, but WHY the Bush team and Congress has done next to nothing in 2008 to anticipate the worsening jobs situation and get programs working by NOW!

    All the politicians seem to have put all their fate in letting Paulson & Bernanke hand out money to failed corporations, praying and hoping that would help the economy turn around (which it has not).

    Now we sit awaiting the inauguration of Obama and the formulation of another stimulus plan that is going to do something (no one seems sure exactly what yet). Even once some plan is produced, passed by Congress and signed by the president, it will take more months afterward to deploy the monies allocated into the economy.

    I also second “ben22′s” comment about the prospects of brokers (and other white-collar) workers being able to obtain or even do work in the anticipated infrastructure expansion, which seems to be the primary focus of published plans.

  19. Ed Sanders says:

    Thanks BR, for saying what needed to be said. My favorite reports are always the ones that include commenters noting that markets are forward looking and then focus relentlessly on something that has already happened. I wasn’t there to hear it, but I’d be willing to make a pretty large bet that the radio/cable/TV news shows talked about today’s market drops as a reaction to the UE report.

    I’ve always wondered who makes investment decisions based on data that has been reasonably* estimated for weeks.

    *If you buy the data ;)