NFP stinks -- and Some People Still Don't Get It
Today’s NFP number stunk the joint up: 75,000. That’s half of the monthly population growth, meaning the percentage of people working (relative to pop) actually went down, if we are to believe this data.
Astonishingly, some people STILL do not understand the data or the context of the weak job growth within this recovery. To wit, my friend Cody Willard – a telecom strategist – writes:
"Surely, Barry, you're not seriously trying to rekindle your argument about "job creation is not what it is typically at this phase of a recovery."
That statement has been a cornerstone of your bearish rants for the last couple years. Yes, I know you've been a "trading bull" and what not, and rightly so, but this economic argument of yours has been, in my view at least, wrong for the last few years and now that job creation is finally starting to slow --- years after your repeated flagging of how this "recovery" (You still call this a "recovery" btw?)"
Ahhh, poor Cody. He is lost in a sea of data, unable to see the truth. He believes the spin.
Rekindle? Just because you close your eyes, the boogie man doesn't disappear.
Hey Cody, please cite me some data revealing this to be an above-average private sector jobs creation recovery. Hell, I'll take average.
You won't, because you cannot.
Cody is engaging in several analytical foibles, but the best way to describe it is "ignore reality." But his subjective error does not change the objective reality for the rest of us: By any honest measure – e.g., NY Federal Reserve or Cleveland Federal Reserve research -- this has been the worst modern jobs recovery on record.
This is not a meme I am pushing or a Bear story I fabricated.
It just “is.”
This doesn't mean you run out and short everything; as I wrote last December, one should Never Confuse Economic Analysis With Trading.
But comprehending the reality of the economic situation is important. Why does this matter? What Cody fails to consider is the importance of understanding the specifics of how a recovery comes about, and how it compares to prior recoveries. What it means as the massive government stimulus that goosed the economy begins to fade. What happens when the Pig is finally thought the Python?
I expect that as we begin to slow, there ain’t a whole lot of fat to get sliced. As unemployment starts ticking up, it will not be pretty. It suggests the next recession will be more severe than the last one.
Yes, Virginia, there is inflation. And yes, Cody, this has been the worst Jobs recovery since WWII. But if you want to believe in Santa, who am I to disabuse you of that notion?
>
UPDATE: June 2, 2006: 12: 47pm
Cody and I finish the debate below
>
Cody responds:
That Rocking Economy From the Past 6/2/2006 12:42 PM EDT Barry, nice job ignoring the points that you've been trying to make using your repeated bearish rants about how this job growth cycle wasn't up to a handful of other job growth cycles that you've measured using the incredibly silly and faulty data provided to you by a bunch of politically motivated bureaucrats.
Nobody's arguing that the results of the way you've bothered to measure job growth show that this cycle pales in comparison to a few recent ones in the past 50 years. And that's relevant to my investing decisions how?
The part that I've always taken issue with and that I continue to take issue with has nothing to do with your use of government data. It's all about your economic conclusions based on that data. Such as, in the post I linked to earlier this morning, when you wrote in April of 2005, "And as I have lamented over and over again on this site, an economy unable to create new jobs at a robust pace -- like this one has failed to -- is not a healthy economy."
It was indeed a healthy economy.
Do I think that today's economy is as healthy as it was last year when we debated its health? No. That's partly why I remain mostly in cash.
Do I think that today's job growth number means that this economy is doomed? No. That's partly why I will be looking to start buying stocks again soon.
The job growth during the last few years was plenty to keep this economy strong and to keep the earnings growth of my favorite stocks going strong. That is what matters, not whether you've found a way of determining that payrolls as measured by the government are growing in the same way they happened to when Elvis or when the Beatles or when Pearl Jam reigned.
To which I reply:
Now we get to the Heart of the Matter 6/2/2006 1:19 PM EDT Ahh, Cody, now we get to the heart of our economic differences.
In my analysis, this has been an extremely aberrational, stimulus driven economy. It's relied on government handouts -- big tax cuts, deficit spending, two wars, ultra low rates -- as opposed to the normal organic growth we have seen under normal circumstances.
You think "It's rocking."
My frame of reference is 1973 (I disagree with those who think the 1929 comparison is more apt). This framework is part of the reason I expect there to be major economic dislocations in the future.
You claim it is "indeed a healthy economy."
The gov't stimulus during the past few years was sufficient to keep the economy moving forward. Earnings growth has been driven in large part by government spending, by overseas demand, by corporate cost cutting, improving efficiencies and productivity gains.
The consumer has exchanged 3 trillion dollars worth of home equity for assorted "stuff." Their savings rate is negative, and their real income has lost ground.
This is what you describe as a "strong economy."
As to Equities, many studies have shown that the ideal entry for stocks is hardly when earnings growth is terrific but softening; Rather, it's when year over year S&P500 earnings gains are poor, but improving.
Time will tell which of us is correct. I think we will know by January for sure who's right. Dinner's on the loser...
Cody's reply:
Re: The Heart of the Matter 6/2/2006 1:37 PM EDT Hey, Barry, don't put words in my mouth there, buddy. I said it WAS a rocking economy last year when you said it WASn't. That's past tense.
Aberrational? Oh, as if there's some standard of normalcy for the economy? LOL. What I wrote is that you have been dead wrong in lamenting the health of this economy FOR THE LAST FEW YEARS. Past tense, see? Yes, I am now worried that this economy IS no longer healthy. Present tense, see?
Fun stuff, man. Love the debate.
My turn:
Potato, Po-tah-toe 6/2/2006 2:21 PM EDT So we both are now saying the economy is decellerating and heading for trouble?
It appears our differences is how we got here: I say its been a long time coming, 'cause she never was that healthy to begin with; you say the economy WAS rocking but is now a cause for concern.
So where do we really differ? I still adhere to the belief that understanding the actual health of the economy beneath the government data. Is this a healthy expansion? Where is the growth? What sectors are doing well and why?
I believe the key to understading what could happen in the future is how we got to where we are now. Again, my analytical read is because of the government-stimulus driven strength, any subsequent weakness may potentially be severe. I tend to agree with Northern Trust's Paul Kasriel, who has said, this is an "accident prone economy."
What say ye?
Cody's last word:
Potatoes...or carbs? 6/2/2006 2:32 PM EDT Barry, that's two posts in a row that you've put words in my mouth. Sigh.
Look, I am concerned about the health of this economy for the first time in a long time. That's far different from being in your camp of (STILL, I might add) saying that we're headed for trouble.
My last words:
We do disagree! 6/2/2006 3:33 PM EDT I don't want to put words in your mouth, Cody. I am merely inquiring as to where we have key disagreement. I think our discussion today has clarified where we are at odds.
On a related note (and answering Richard Suttmeier's question), a study done by Asha Banglore (also of Northern Trust) back in April of 2005 found 42% of all new private sector jobs were Real Estate related.
This has been fun, Cody, and I am looking forward to checking out your new digs next week. Enjoy the weekend, and be sure to cacth tomorrow's linkfest (now with more niacin than before!)
Friday, June 02, 2006 | 11:16 AM | Permalink
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» Indications of slower growth from Econbrowser
This week's data paint a picture of slowing growth.
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Tracked on Jun 3, 2006 12:57:08 PM
» Barry vs. Cody from DealBreaker.com
The Big Picture blogger Barry Ritholtz has been engaging Cody Willard on todays unexpected low employment numbers. Willard says that Ritholtz's argument that the last couple of years have been a jobless recovery is wrong. But those are the details.... [Read More]
Tracked on Jun 5, 2006 1:10:45 PM
Comments
barry,
do you still suspect that we will visit lower lows over the coming weeks as previously suggested. looks to be following a classic abc pattern with the indices? take care.
Posted by: erik | Jun 2, 2006 12:13:55 PM
Come on Barry, you know you're just jealous of the Codester 'cause he's a Teen Beat magazine cover model and you're not:
http://tinyurl.com/fc7hr
Posted by: trader75 | Jun 2, 2006 12:18:29 PM
devils in the details my boy.......resource utilization is going to drive the fed higher and higher......solid wage inflation.....softer job creation are the contributing factors as outlined by the report
Posted by: gildo | Jun 2, 2006 12:19:11 PM
As Barry implies we need approx. 150K jobs/month to net out zero for new job creation against labor force historical growth + 'natural' long-term growth; or at least that's the figure of merit.
If you are so inclined you can download the payroll data and look at the statistics as far back as you care to. And even graph them courtesy of Exel. Having performed that little exercise I'm happy to say, but very unhappy to know, that new jobs were < 150K until Q304 and have been oscillating around net new of ZERO since then. If you then look at cumulative net new jobs since then we are still in the hole - that is we've not replaced lost jobs - by approx. 1.8 Million jobs. And people wander/wonder why consumer demand is flattening and headed down ?
As(again) Barry has pointed out this 'recovery' has not achieved organic growth where internal factors self-reinforce increases in spending or hiring.
Posted by: DBLWYO | Jun 2, 2006 12:20:51 PM
Does someone have a quick def. of STAGFLATION and are we either going there or there already???
Just because the economy slows doesn't necessarily mean that inflation goes away does it??
Esp. if the money creation minus M3 reporting continues..
Thanks
Posted by: SINGER | Jun 2, 2006 12:21:29 PM
The only data that I specifically remember Cody citing is when he says that GOOG is the fastest growing billion dollar company in the history of the universe or that CSCO just made all-time high revenues even surpassing the dot com era. And he will italicize "all-time high." And he enjoys the technology out there that is ongoing.
But hard economic data I have never really heard him elaborate upon.
I enjoy both your and Cody's commentaries as you guys are great for trading.
I also think alot has to due with your natures. It seems to me that Cody is an optimistic appreciative country boy by nature that enjoys the fruits of technology. You, of course, also enjoy technology, but by nature are more of an "economist" and skeptical.
Posted by: Michael C. | Jun 2, 2006 12:25:55 PM
maybe we should call this a "bushovery"
Posted by: Bob A | Jun 2, 2006 12:26:22 PM
Cody the punk just needs a good haircut, then maybe we listen to his crap.
Barry remember to wear a nice tie when on CNBC very important (show biz) stuff!!!
Posted by: MASH | Jun 2, 2006 12:37:22 PM
Cody suffers from the ill you mentioned a few days ago. Bull market babies? I can't remember what you called it. He's not old enough to have lived through a time when markets didn't go up forever so he's basically a perma-bull. And because it appears he hasn't studied history or the wisdom of those who benefitted from living through these times, ie Buffett, Mamis, Livermore, Graham, Grantham, Donchian, Deemer, Murphy, Edwards, etc., he's dangerous.
Buy the dips Cody. Or as I like to look at it, the Pavlovian response of the retards is to buy the dips. Time and again they are rewarded for doing so in a bull market. That conditioning creates a self-reinforcing delusion that works until it no longer works. Then the bear takes his money and doesn't give it back. I am da bear.
Posted by: B | Jun 2, 2006 12:50:10 PM
hey, anyone who rates his own iMac as a "6" is out to lunch.
Posted by: Uncle Jack | Jun 2, 2006 12:54:48 PM
I agree. Economic growth has been fueled by the debt explosion, not employment and real income growth. Quite unsustainable.
Posted by: Mike M | Jun 2, 2006 12:55:47 PM
Speaking of Cody, does anyone have his performance numbers for his newsletter or fund?
Posted by: Michael C. | Jun 2, 2006 12:56:35 PM
"this has been the worst modern jobs recovery on record."
I agree with you Barry. How can anyone argue. The mantra of the early 2000s was to move jobs offshore. We did that in droves. And now we have the trade deficit to prove it.
This just in: foreclosures are jumping in CO.
http://thehousingbubbleblog.com/?p=791
If you think the jobs number was weak this week, just wait until half the housing sector is laid off.
The market topped on May 10th. Deal with it.
Posted by: me2200 | Jun 2, 2006 12:57:17 PM
Barry,
I take you over Cody 99 times out of 100. But this time I disagree with everyone that keeps harping on the "jobless recovery". In the last recession unemployment never went up that much. Unemployment stayed at a low so it should not be surprising to have a lower level of new jobs in the recovery.
That being said I do think the recovery is not that solid and have been fueled mainly by loose monetary policy.
Posted by: jab | Jun 2, 2006 12:57:24 PM
I'll bet $20 that the emerging markets sell off again over the NFP numbers. And then the hedgies will have to cover more margins, and on Monday we will sell off.
Everyone seems to be forgetting the weak vehicle sales numbers we got yesterday.
Posted by: me2200 | Jun 2, 2006 12:59:49 PM
While many domestic jobs are outsourced the job growth is not a direct indicator of economic health. You can produce and consume things without employing people in this particular country. Yes, consumption could be outsourced, too.
Posted by: dude | Jun 2, 2006 1:03:42 PM
"Surely, Barry, you're not seriously trying to rekindle your argument about "job creation is not what it is typically at this phase of a recovery."
Let's hear Cody and Paulson tell that to the 2700 at Heinz, 5,000 at Sun and 16,000 at Intel.
I would argue that you can count on one hand the times during the last 5 years revised job creation equalled the AVERAGE during the Clinton years.
And how lame is the 150,000? Every year the population increases and still we only need 150,000 to absorb new workers.
Posted by: me | Jun 2, 2006 1:05:55 PM
Cody counters you Barry by saying..."It was indeed a healthy economy...The job growth during the last few years was plenty to keep this economy strong and to keep the earnings growth of my favorite stocks going strong."
Does he cite any numbers? No. And to what earnings growth is he referring? AAPL MRVL? He is so adamant yet so very vague. He says that government statistics can be politically tweaked, as if earnings numbers cant'?
Posted by: Michael C. | Jun 2, 2006 1:06:39 PM
The real fun is going to be as the real estate and construction jobs go, and we add those folks back to the labor pool....
Posted by: donna | Jun 2, 2006 1:12:41 PM
Ok, for those who say this is not a jobless recovery, how about another statistic to slice it a different way to show you how precarious this recovery is.
Top three job creation areas this cycle?
1) Real estate
2) Mortgage specific finance jobs
3) Retail
So, from this what can you draw? Our economic growth this cycle is predicated on building houses, financing houses and finally...............furnishing our houses.
Forget about the NARI statistics on house prices still going up. That is total bullsh*t. They are either twisting data to not take into account square footage costs, nominal pricing or YOY pricing or some other twisted measure. They have a vested interest in keeping this market going as long as they can. It's like asking the fox if he's been in the hen house. Housing is cooling. If it really cools, where do all of these jobs created this cycle go? I'll tell you. Bye bye. More importantly, what happens to the consumer psyche?
Posted by: B | Jun 2, 2006 1:13:41 PM
It really hasn't been a recovery at all. Only a recovery in profits.
Posted by: Lord | Jun 2, 2006 1:16:02 PM
I don't know about where you are Donna, but where I am the housing jobs are mostly Mexican and mostly illegals, so I wonder if the loss of those jobs will show up in any official numbers. For that matter, when we have 10,000,000 illegals working in this country, what the frig meaning does 50,000 'official' jobs have ANYWAY???
Posted by: Bob A | Jun 2, 2006 1:22:20 PM
Lotta Cody haters in the crowd. And although I disagree with him on the issue at hand, I happen to think Mr. Willard is a very good trader. He's the yin to Barry's yang.
Posted by: Bynocerus | Jun 2, 2006 1:23:43 PM
I think the editors at Real Money and CNBC put Cody up to his contrariness just to create drama.
Posted by: Bob A | Jun 2, 2006 1:27:58 PM
If you had listened to Cody Willard you would have bought MSFT at 27:
http://makeashorterlink.com/?U2513243D
Somehow Cody doesn't strike me as a trader at all. More like someone who is on CNBC everyday because of some powerful family connection (hence Kudlow's disparaging nickname The James Dean of Telcom.)
Posted by: sell_the_dow | Jun 2, 2006 1:33:36 PM
