NFP: The Trend is Not Your Friend
Another month ticks by, and once again it is time for everyone’s favorite economic data point/recency effect proof, the Employment Situation Report.
Consensus is for a -524,000 job loss, out of a range of -750,000 to -450,000; On U3 Unemployment Rate – the consensus is for a jump from 7.2% to 7.5%, with a 7.2% to 7.6% range.
This data release is the most over-analyzed, least important economic report for investors. And yet each month, we go through this charade that the we know the precise number of jobs lost and what it means to equities. Traders eagerly await the data and respond to it with enthusiasm. To many, NFP is the single most important economic data point there is.
The polite word for this is Poppycock.
Here is the statistical reality: We have a working employment force of more than 140 million people, and we do not really have the ability (yet) to measure the change in realtime of a few 100,000 people each month. Instead, we get a reasonable approximation of what those changes were, a number that is neither precise (similar results) nor accurate (closeness to reality).
But it is, as the expression goes, close enough for government work.
Regardless of the mathematical accuracy of this measurement, here is the grim reality that we do know with both precision and accuracy: We are coming off a post-recession cycle were job creation was anemic. 2002-2007 was the weakest employment creation cycle in the post-war era.
Second, we also know that the jobs number today will be bad. As we have long exhorted, any single data point is a meaningless statistic as a standalone number, and what actually matters is the overall trend of the past 12 months. That we also know with grim certainty: It has been bad for quite a long time, and is getting even worse. When it comes to jobs, the trend is not your friend.
Are we likely to see a million plus loss? Possible but doubtful.
Any chance we see a jobs gain? All but impossible.
My range is 600-700k, but if its better or worse it is irrelevant. A loss of 450k jobs is not a good thing, and a bigger loss of 850k jobs is not that much more significant to the overall economy.
In a work force of 143 million, is there a significant difference, given what we know about how the sausage BLS data gets made, between -450k and -750k? That’s really a margin of error difference when we are discussing changes in group of this size (143 million).
~~~
One other factor is the unemployment rate. I expect U-3 to inch closer to 7.6-7.8%, but watch the U-6 level (found here: Table A-12. Alternative measures of labor underutilization). It has soared from 8.7% in December 2007 to 13.5% in December 2008. We could see a number with a 14 handle (i.e., 14.5%), eventually on its way towards 15%. Befor this recession is over, I expect U6 will be closer to 20% than 15%.
Two other factors to note:
1) We get the Revisions in the Establishment Survey Data this morning.
With the release of January 2009 data on February 6, 2009, the Current Employment Statistics survey will introduce revisions to the nonfarm payroll employment, hours, and earnings data to reflect the annual benchmark adjustments for March 2008 and updated seasonal adjustment factors. Not seasonally adjusted data beginning with April 2007 and seasonally adjusted data beginning with January 2004 are subject to revision.
2) We also are treated to the Changes in the Household Survey :
Effective with the release of data for January 2009, revisions will be introduced into the population controls for the household survey. These changes reflect the routine annual updating of inter-censal population estimates by the U.S. Census Bureau.
We will find out if these are significant updates or not at 8:30 am.
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February 6th, 2009 at 7:05 am
Undereducated/uneducated men will NEVER see their jobs return in a meaningful way.
As Layoffs Surge, Women May Pass Men in Job Force
http://www.nytimes.com/2009/02/06/business/06women.html
February 6th, 2009 at 7:18 am
http://www.heacham1.freeserve.co.uk/jackschitt/jack.htm
It may be confusing and a little messy, but at least nobody can say you don’t know Jack
February 6th, 2009 at 7:31 am
I totally agree Bruce. At the same time I wonder how much all the educated MBA’s have to do with the current situation we are in. They seem to throw common sense out the window these days. Any idiot could do a much better job at times.
My Step Father was a very successful business man with his 8th grade education. He has a lot of MBA’s money in his accounts.
February 6th, 2009 at 7:35 am
And Canada, who was better positioned than us due to abundant resources, seems to have found the unemployment flu also.
http://www.rttnews.com/CorpInfo/EconomicCalendar.aspx
February 6th, 2009 at 8:04 am
I’m going to go out on a limb and say that since we’re so close to technical levels, that it is going to be a “way better than expected” number. It’s already BEN proven over and over that every time we get to support levels some miraculous news item comes out or gets leaked.
February 6th, 2009 at 8:04 am
undereducated and uneducated? what do you exactly mean by that? i think jobs where people actually know and learn a trade will be back in vogue. and the MBA’s will have the tough find. of course the field of medicine will always be in demand
February 6th, 2009 at 8:23 am
Bruce:
It will be a buyer’s market for manpower of any kind. Those with “education” will fare no better than anyone else and they will have the burden of outstanding and non-dischargeable student loans.
About a decade ago, I worked with an elderly (mid 70′s) businessman who observed, on having fired an incompetent and unmotivated MBA, “they’ll sell a Master’s degree to anyone who can pay for it.”
The age of the entrepreneur (actually the hustler – and I don’t use the term in the criminal sense) has returned. Diplomas of advanced education are, like our currency, no longer a true measure of anything substantial.
Never forget: GWB was our “MBA President”.
February 6th, 2009 at 8:26 am
The Birth Death model will subtract at least 400,000 jobs, pushing the toal over 900,000.
February 6th, 2009 at 8:34 am
My Lord, man, have you lost your mind! This statistic is of the utmost importance! If the number is 524K (expectations) then the market will rally because the analysts were right. If the number is lower than 524k then the market will rally because, hey, the recession is over, right? If the number is much higher than 524k then the market will rally because surely it’s the bottom, right?
Don’t look behind the curtain. Look at the pretty numbers. Oooh, pretty numbers. You’re getting sleepy, sleepy. Buy stocks. Buy houses. Buy cars. At the count of three you will wake up feeling refreshed and wanting to buy. One, two, three.
Frankly, who gives a rat’s ass what the DJIA or S&P will do. The market is rallying (or at least holding) because the US government (i.e. all of us) are transferring all our money (that we don’t really even have) to Wall Street and Detroit to prop up their share prices. This is the most astonishing Trickle-Down Theory ever applied to the economy. I should try that with all my friends and neighbors: Hey, guys! We are all in deep shit, broke, foreclosed and unemployed. But check this out, give me all your money and your kids money. Then I will be rich and make everything better. Seriously. Trust me.
and finally, can we please amend the birth death model to simply the Death Model and apply it to Congress?
February 6th, 2009 at 8:57 am
harold: Yes, medicine is holding up well. I imagine MD’s will make less because the current insurance structure is unsustainable, esp. as more and more people loose health insurance along with jobs. There is the hidden cost to employers (not hidden to the employers, but to those outside management). When the hidden subsidies of health insurance end with job loss and people see how much the system really costs, we may see some meaningful change there.
Probably nursing will do well, as they really do much of the direct patient care. Also there is a shortage of allied health workers. Trying to get my idiot son to go into one of the latter. He can get certified in a year and have reasonable prospects for employment, while my daughter with her J.D. and 150k loan is unemployed.
Marcus Unfortunately, they sell MD’s to almost anyone who can get into med school. The only diff is that MD’s will probably get jobs after graduation.
I tend to agree with Expat that whatever the number is, there is going to be a bounce from the stimulus. Even those who think think we are going down the tubes are saying this. How can $800B in spending not prime the pump? For awhile anyway? Plus, the investment community is impatient and money managers have to be feeling pressure to generate returns, which they can’t do in cash. Fidelity is replacing all kinds of people and expecting the replacements to perform.
http://news.morningstar.com/articlenet/article.aspx?id=274790
February 6th, 2009 at 9:04 am
I think another way to consider this is jobs predicated on debt are never going to be like they were, ie Mortgages, cars (obviously). Then, a little further down the chain…electronics and other toys which, for the most part are purchased with credit cards. Then, going further, industries, which used to be exclusively for the rich, but matriculated down to the middle class are out. Jobs like Pet Groomers, Personal Coaching, etc….services that no rational person would pay for with “hard-earned” money—ie money that was earned in an industry not reliant on easy credit money. [I know, an argument could be made that no rational person would pay for this drivel, period.] These jobs—man or woman…educated or not are out.
Then, there is the issue of what to do about jobs that are predicated on a “bureaucratic fiction”—like tax preparers, many lawyer jobs, a lot of the academic BS jobs on subject matter that just doesn’t matter…to medical billing based on the bureaucratic layers of health insurance, etc ., etc…jobs we know are bullshit, but are “modern necessities”.
It seems like Obama’s plan is a massive jobs transfer of jobs from the debt dependent realm to taxpayer-bureaucratic dependent.
February 6th, 2009 at 9:10 am
Ok, 598K. Rally, rally, rally. C’mon! Put on those rally caps, boys!
February 6th, 2009 at 9:42 am
Expat Said:
February 6th, 2009 at 9:10 am
Ok, 598K. Rally, rally, rally. C’mon! Put on those rally caps, boys!
reply:
You cynicism is appalling. Investors are serious people doing serious work, especially the ones who specialize in complicated trades. The analysts who guide them are almost messianic. The business news personalities who spread the word are following a higher power. Economists have a special gift they choose to share with the unwashed among us. Bankers are professionals. And government is here to help you. It’s a system that’s worked for over 100 years and it will work the same way 100 years from now. You cretin.
February 6th, 2009 at 12:15 pm
Baby Boomer MBA = President of the United States
Generation X MBA = Unemployed Idiot
It’s all about timing, baby.
February 6th, 2009 at 12:30 pm
@Expat:
“This statistic is of the utmost importance! If the number is 524K (expectations) then the market will rally because the analysts were right. If the number is lower than 524k then the market will rally because, hey, the recession is over, right? If the number is much higher than 524k then the market will rally because surely it’s the bottom, right?”
You captured it perfectly.
February 6th, 2009 at 1:24 pm
Mike in Nola,
You know I thought the same thing about nursing, but in my area at least, that is dead wrong.
Two examples
A hospital outside of philly just let 700 nurses go (Crozer)
the largest hospital in the state of DE 200 (Christiana)
They have both cut back over-time hours for them as well.
I was under the impression that nursing was one of, if not the highest, in demand positions but that is not holding true in my area.
February 6th, 2009 at 2:23 pm
@ben22 & Mike in Nola: Nurses are being laid off here in the Twin Cities as well. I think health care (and maybe even pharm) will be feeling this as well before too long as people cut back on those expenses too.
February 6th, 2009 at 2:45 pm
Boy, that stat about the nurses is surprising.
Is that hospital outside philly still in business? Must be a big hospital; 700 is a lot of nurses.