NFP: Understanding the Lag
NFP is out shortly, and the consensus is for an ugly number. U3 Unemployent is expected to rise to 8.5%, NFP loss is for 660k, according to a Bloomberg survey. Since the recession began in December 2007, the economy has already shed 4.4 million jobs. A 600k number will push the total recession losses over the 5 million mark.
One of the sillier things I keep hearing from the usual suspects it that since NFP is a lagging indicator, it doesn’t matter much.
This is an inappropriate way to analyze the employment data.
It is true that as a whole, employment data lags the cycle. This means the data series will still be negative even after the economy flips positive. On the other hand, Leading Indicators flip positive while the economy is still contracting.
While NFP lags the economic cycle, one should simply disregard the data. One cannot conclude — as some people have on TV — that the economy is improving and therefore NFP can be dismissed out of hand as a lagging indicator
Instead, if you are dissecting this data, you should be considering which parts of NFP are not lagging, and pay close attention to that. That means looking a three components
-Temporary Help
-Hours worked
-Income
All three of these tend to lead the cycle. These data points were falling long before either the market or the economy turned south. I expect they will stabilize before the economy improves. If I have a few free minutes later, I will update this data later.
April 3rd, 2009 at 8:22 am
Barry: Do you think Temporary help will lead this time around though? I’d make an arguement that with all of the people unemployed (or nervous about being so) that an employer can pick up a full time employee on the cheap instead of hiring Temp help. A friend of mine owns a temp business and says his business is still drying up, but that is simply one local data point.
April 3rd, 2009 at 8:29 am
Unemployment figures are somewhat lagging in the sense that they cover the previous month. But if we count big layoff numbers that haven’t yet been baked in, like the recent IBM’s 5,000 number, the pain is growing not decreasing.
In light of some of the doom ‘n gloomer calls (i.e. Roubini) for 9% unemployment for all of 2009, the fact we are already at 8.5% in the first quarter should tweak some noses. Something is certainly rotten in the state of Denmark, not to mention everywhere else. And it ain’t the fish!
~~~
BR: That is a common misconception — All data is historical, i.e., is based upon what happened last month. By definition, anything you can measure (as opposed to estimate or project) ALREADY HAPPENED.
What LAGGING INDICATORS means is that this data point LAGS THE ECONOMIC CYCLE. It continues to be weak even after the economy begins to improve.
Conversely, Leading indicators tend to improve before the economic cycle turns up.
April 3rd, 2009 at 8:35 am
“Employment is a lagging indicator”–the usual suspects
wasn’t that long ago, was it?, that lower Unemployment #’s were the prima facie case for ‘the new Prosperity, the unending Bull, proof of the exceptional American Economy’…
now? with the #’s going the other way? excuses, obfuscation, misdirection…
who would’ve guessed?
http://www.thefreedictionary.com/prima+facie+
http://www.thefreedictionary.com/obfuscate
April 3rd, 2009 at 8:39 am
U-6 (not seasonally adjusted) 16.2%
U-6 (seasonally adjusted) 15.6%
U-3 (not seasonally adjusted) 9.0%
U-3 (seasonally adjusted) 8.5%
January 2009: revised from -655 to -741.
February 2009: remains at -651
March 2009: -666
April 3rd, 2009 at 8:41 am
March 2009: -666
More evidence of the Leftback 666 bottom?
-Mike J
April 3rd, 2009 at 8:43 am
Birth death model added 114,000 fake jobs. Real number is at least 800,000
April 3rd, 2009 at 8:43 am
Very importantly, often overlooked: In March, the average workweek for production and nonsupervisory workers on private nonfarm payrolls fell by 0.1 hour to 33.2 hours, seasonally adjusted–the lowest level on record for the series, which began in 1964.
April 3rd, 2009 at 8:58 am
Look on the bright side. When the not seasonally adjusted U-3 figure declines due to seasonality, we can call it an ‘unexpected’ monthly decline in U-3. It will be in correlation with another ‘unexpected’ monthly gain in housing (or if we are lucky it will be the ’cause’ of the unexpected gain). We be at the bottom fo sho!
p.s. I’m a buyer at tres seis.
April 3rd, 2009 at 9:02 am
Stuart, the U-6 number is alarmingly high.
I expect Mish will have this report dissected thoroughly by noon, including the B/D fakery.
Enough about the LB bottom already, bring on the earnings! (If there are any…)
Curious indeed. -666. The sign of the beast.
April 3rd, 2009 at 9:07 am
664
The neighbor of the beast.
April 3rd, 2009 at 9:08 am
Gotta love how January data was revised from -655k to -741k. Seven hundred forty one thousand jobs! This really can’t be good… I wonder how this month will get changed once the final data is in
HCF
April 3rd, 2009 at 9:11 am
USD is up on NFP. lol
April 3rd, 2009 at 9:13 am
Gold and gold miners on sale today. Fill your boots.
April 3rd, 2009 at 9:14 am
Supposedly the IMF is going to sell gold. That’s probably why the greenback is rising. I know it’s why my Au is falling…
April 3rd, 2009 at 9:17 am
Au will not fall far. (I am not a gold bug, BTW).
XLF is lower in pre-market. Music to my ears.
You can put a TARP over the banks and Mark to Magic, but they still stink.
April 3rd, 2009 at 9:20 am
HA!
The prez just said on a CNBC clip “We are entering a new era of responsibility where financial risk-taking will be curtailed”
Uh-huh.
What exactly is Geithner’s plan again and on who’s skin does it fall upon???
April 3rd, 2009 at 9:23 am
I’m watching the Employment Report Breakdown on cnbc.com and did I just hear Steve Liesman say that the LEVEL of unemployment doesn’t matter, just it’s change? WTF?!!
Tell that to 8.5% of the population that is lacking a job (or 15.6% if you’d like)…
I know we all like arguing statistics, but we gotta keep in perspective that there are actual people behind all this. Sometimes, CNBC just makes my blood boil. Correction, these days it’s ALL THE TIME…
HCF
April 3rd, 2009 at 9:26 am
Chief, check out this writing on Geithner’s plan. Scathing but dead on. A treat to read. http://www.nakedcapitalism.com/2009/04/treasury-trying-to-defend-bank-gaming.html
Leftback: U-6 of 25% I fully expect to see. I’ve been picking up cheap good quality jrs and a few producers listed on Toronto.
April 3rd, 2009 at 9:28 am
I think I am going to take the opportunity today to sell the last of my long term stock holdings (just some leftover pharmaceuticals) and add some GLD, DBA and maybe some USO/USL. It will be nice to be 100% out of stocks and leave the craziness to the day traders. If the economy does indeed turn around there will still be plenty of time to get back into stocks if I change my mind. In the meantime, I feel more comfortable with cash and a few commodities.
April 3rd, 2009 at 9:28 am
A 25% U-6 means we are going to have one or more long hot summers. Very hot.
The problem the CNBC ‘presentards’ don’t see is: “Where are the new jobs going to come from?”
April 3rd, 2009 at 9:31 am
@leftback:
>“Where are the new jobs going to come from?”
Obviously from a healthy combination of high leverage, money printing, and smoke and mirrors, DUH!
lol…
HCF
April 3rd, 2009 at 9:31 am
Thanks, Stuart. I am now on negative time this morning.
But here is an interactive map from The Economist. Make sure to click on the map to explore “Econoland”.
http://www.economist.com:80/world/britain/displayStory.cfm?story_id=13395767&source=features_box_main
~~~
BR: I already have that scheduled for my Friday afternoon fun post !
April 3rd, 2009 at 9:36 am
Just gotta love the continual revisions UP months down the road for prior months. How convenient. Based on this trend, why shouldn’t we think that March’s numbers aren’t closer to 700K or even 800K?
April 3rd, 2009 at 9:46 am
@Mannwich:
I think this is the BLS strategy: No revision or minor revision the month after, then BIG revision two months after. The 741k January 2009 revision from 655k is TERRIBLE, but all the talking heads can just dismiss it as “being in the past.” I wouldn’t be surprised if Feb. is revised up quite a bit next month…
HCF
April 3rd, 2009 at 10:08 am
Let’s not forget about the uncounted “grey” workforce.
I mean all the Latinos out of work or that went back home and if I recall correctly, not long ago I read an article about the returning population causing concern in their respective home countries.
I would love to see those numbers….
April 3rd, 2009 at 10:11 am
Chief, thanks. I love those interactive maps. Great stuff.
April 3rd, 2009 at 10:26 am
speaking of: “A 25% U-6 means we are going to have one or more long hot summers. Very hot.
The problem the CNBC ‘presentards’ don’t see is: “Where are the new jobs going to come from?””–lb
these two clips are worth watching:
http://www.lewrockwell.com/blog/lewrw/archives/026165.html
http://cryptogon.com/?p=7796
April 3rd, 2009 at 12:05 pm
Very wrong for anyone to say the word “stabalization”, including the President, with regards to job losses and the economy. Stable means “not getting worse”. A stable chart has a line that is flat across the chart, from left to right. Until we see job losses offset my job gains, and the net is zero, we don’t have anything stable. And you can’t move toward stable until at the very least the number of losses begins to decrease each month toward zero. Obama says that the “patient is stable”??? Well, if I go to the ER, and after treatment the doc tells my family, “He’s stable, but he’s still getting worse, but he’s not getting worse as fast as he was when he got here.”???? Do you think my family would take that as good news?? C’mon, who is he kidding. This kind of “spinning to the point of lying” should not be ignored.
April 4th, 2009 at 7:33 am
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