Today we find out just how seasonal those 200,000 new jobs were in December 2011. Consensus is for employment to grow by 140,000 — about par with population growth. Unemployment is expected to be unchanged at 8.5%.

As I am so fond of writing, no single month’s NFP matters all that much — focus on the overall trend to see what is significant. By way of the two charts below, the major overall trends have been improving. New Jobless claims have been ticking downwards since May of 2011. (Benchmark updates could be significant also).

We have seen a variety of retail sales disappointments — notably, Amazon.com (AMZN) and Ambercrombie & Fitch (ANF). Without more hiring and wage gains, higher consumer spending is going to be a difficult challenge to meet.

From a trading perspective, weakness would be problematic. With earnings slowing, the aforementioned soft retail, and the markets as overbought as they have been in a few months, the bulls don’t really need a weak number today.

From an investing standpoint, the outliers are where the risks lay: Too strong number (rather unexpected) might increase pressure on the Fed to end Operation twist and postpone QE3. A too weak number raises the possibility of a recession — currently thought of as not likely amongst most economists. A few observers — ECRI, Hussman, Rosenberg, Shilling, Faber, Rogers — think a recession is highly likely (For the record, I am still at 50-60% chance of recession, but willing to take that lower if the mixed data improves).

Hence, your reaction to today’s numbers should be a function of your positioning, holdings, timeline, and your risk management.

Employment situation report released at 8:30am

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Initial Jobless Claims (2/2/12)

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NFP (December 2011)

All charts courtesy of Barron’s Econoday

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Category: Employment, 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.

13 Responses to “NFP: Outliers Are Where Investing Risks Lay”

  1. Orange14 says:

    Retail is weird these days. Some stocks are holding up quite well and others are down in the dumps. I would not say that everything is bad (same can be said about the market in general since you can usually find value if you look carefully enough). Look at what VFC did last year. In addition, some high end and specialty retail did OK as well.

  2. Nordlys says:

    Calculated Risk had this yesterday about today’s numbers, found it interesting, especially the Gallup comment todards the bottom…

    http://www.calculatedriskblog.com/2012/02/january-employment-report-revisions-and.html

  3. judabomber says:

    Interesting times we live in.

    The Chicago Fed put out a recent letter chalking up half of the decline in the post-1999 labor force participation rate due to long-running demographic patterns, such as the retirement of baby boomers.

    http://www.chicagofed.org/digital_assets/publications/chicago_fed_letter/2012/cflmarch2012_296.pdf

    But buried deep in their analysis you find this line:

    “As of late 2011, the actual LFPR for 16–79 year olds is 1.1 percentage points below trend LFPR, representing the largest deviation from the model’s pre¬diction over the period that we study, 1987–2011 (see figure 3). Indeed, over the 2008–11 period, we find that only one-quarter of the 1.8 percentage point decline in actual LFPR for 16–79 year olds can be attributed to demographic factors.”

    In other words, your model is not very robust when you try to explain the decline in the labor force participation rate over the last few years, which is the phenomenon everyone cares about.

  4. Winter seasonality, employment report preview edition

    Warning: we start by rambling about a bunch of stuff that may not interest anyone besides methodology geeks. If you want to jump straight to how this morning’s BLS employment report might be affected by seasonality issues, scroll down to the next section in bold.

    On the familiar list of challenges faced by the US economy last year were the reemergence of Europe as a perpetual near-disaster, the commodities price spike, supply chain disruptions from the Japanese earthquake, the S&P downgrade, and a remarkable streak of policy stupidity (budget showdown, debt ceiling debate, etc).

    The economy did seem to enter 2011 with decent momentum; but when we reflect on the fact that last year had the slowest growth of any non-recessionary year since 1947, we’re still unsure if we should wonder why it was so bad or be relieved that it wasn’t worse.

    It’s in that frame of mind that we’ve been ruminating on the seasonality bias in recent economic indicators, a subject we’ve been writing about for the last couple of months.

    As it turned out, the economy was worse heading into 2011 than everybody thought, and Goldman Sachs economists recently estimated that almost a third of the upside surprises in economic indicators throughout the winter of 2010 and early 2011 were the result of the seasonality adjustment problems that we’ve discussed.

  5. sabre_jenn says:

    Am I the only one who has trouble reconciling NFP with day to day observations?

    If payrolls are growing so much, where is the payroll tax revenue? Why are retail sales flat (and sales taxes too)? Why are retail stores cutting staff and/or hours worked? Why are consumers lowering their savings rate if they have money? Why are actual store sales shifting toward necessities?

    Why were CEOs at Davos predicting another tough year? Why are economists all over the G7 lowering their growth expectations for 2012-2013?

    If the stock market is so great, why are Wall Street CEOs laying off people AND cutting pay for those who remain?

    Why is my local food bank putting a plea for help in the paper saying that the number of families needing help buying food has hit record levels? Why is the federal government handing out record amounts of food stamps?

    Either the food stamp program is one big fraud or these statistically derived payroll numbers have nothing to do with reality … my money is on the hungry guy outside the food pantry, and short government statisticians

  6. davrovana says:

    Regarding Labor Force Participation Rate: http://twitpic.com/8f5y20

    I’m looking for a big shock to my confirmation bias that strong economic growth is necessarily suppressed by the debt-logged zombie financial system and US fiscal situation. I don’t feel my ship turning quite yet.

  7. HEHEHE says:

    The BLS removed 1.7M people from the labor market to get the latest rate. KEEP THAT UP AND THE UNEMPLOYMENT RATE WILL BE 5-6% BY THE ELECTION. This economy is ripping!!!!

  8. HEHEHE says:

    Oh it was only 1.2M they removed. Maybe 1.7M will be next month;)

  9. dead hobo says:

    Things look better than I expected. However, even with these improved numbers via revisions, the economy isn’t going gangbusters yet. I suspect the jobs are paying less than the ones lost before, so nobody will be going out to spend like crazy just yet. I am more optimistic, though. Greece going bankrupt will have even less of an effect.

    I was ready to buy back in a little today to celebrate the good news but I changed my mind for reasons of self improvement. I’m trying to correct a defect in my wetware. I often succumb to the euphoria of the moment on my initial buy. This negatively impacts overall profits. In each case where this occurred, had I waited a few days, I would have made my initial buy at a much better price. Therefore, I will wait until next week or the weeks after to take the initial return plunge. Markets don’t travel in a straight line and they will likely pass yesterday’s close a few times before rising above it for an extended period. Should we have a European scare during that time, I would be most grateful.

    PS: I’m loving my new Xoom tablet. I can see it morphing into a desktop replacement for many purposes over time. The Kindle Fire has been confiscated for personal use by a member of the hobo household. I really can’t master putting on 10 inch screen protectors. Fortunately, the stylus I prefer makes this less of a necessity. Does anyone know the secret to putting one on?

  10. Greg0658 says:

    sabre – humm phony #s ? humm whats a guy to believe – dang capists cant live with ‘em can live without ‘em

  11. [...] noted earlier, no single month matters as much as the overall trend — and the trend is unequivocally upwards for the better part of 3 quarters [...]

  12. bear_in_mind says:

    @DeadHobo: Those screen protectors are a b*tch to install without air bubbles, aren’t they?! I haven’t installed one perfectly yet, but gotten it down to 2-3 small bubbles around the perimeter. Here’s a quality producer of screen protectors and they have installation videos on their site: http://www.halo-direct.com/

  13. bear_in_mind says:

    Glad to see the increases and positive trend in NFP. Will be interesting to see what impact they have on tax revenues. If these hires follow the trend over the last 24 months (i.e. folks taking work in lower-paying positions) the broader economic benefits will be muted.