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Moving the Goalposts: Fugly NFP

The Human capacity for self-delusion never ceases to amaze. If you ever hear me spouting the same sort of $%#* I heard on CNBC at 8:31am, grab me by the lapels, throw a glass of water in my face, slap me HARD across the face, and yell "WAKE UP MAN, YOU'RE DELIRIOUS!"

How this month's NFP was labelled "perfect" is simply beyond my ken. The only rational explanations I can think of are an unwitting influx of Psylociben or perhaps blunt head trauma. Steve Liesman was the notable exception, as he came away rather unimpressed with the data.

Let me say the nicest things I can say about NFP first: it was consistent with consensus expectations of Wall Street economists. The prior two months were revised higher, and the the unemployment rate fell slightly. Business and professional services companies' payrolls rose 26,000. Commercial construction added 17,000 (4,000 from residential!), making up for some of the losses in Home Sector (including residential building, real estate agents, mortgage brokers, contractors, etc.).

Beyond that, the details of the report are just fugly (citations in parens):

- The mix of job growth remains skewed toward low-paying industries;

- Weakness is most evident in the retail component -- which has stopped growing;

- Almost one-half of the rise occurred in the health and social assistance category -- generally low-paying jobs;

- Other sectors have not picked up the slack
(Joshua Shapiro, MFR);

- The pace of job creation has slowed dramatically.

2004: 175,000/mo
2005: 165,000/mo
2006: 140,000/mo
Past five months: 119,000/mo 
(Steven A. Wood, Insight Economics)

- Manufacturing has lost more than three million jobs since 2000; Conditions remain poor;

- Prior recoveries at this point had created two million manufacturing jobs;

- Unemployment fell to 4.7 from 4.8% due to a large number of adults leaving the labor force (NiLF);

- The two-tiered labor market continues: The top quartile has it good; but for everyone else, the future is worrisome;

- For many workers, real incomes lag inflation;
(Peter Morici, Univ. of Maryland)

- Total labor input is growing very sluggishly in Q3, foreshadowing the continued softness in economic growth.
(Steven A. Wood, Insight Economics)

- The average work week is dropping (by 0.1 hours to 33.8 hours), even as productivity slows.

>
Want to have a clue as to how absurd things have gotten in the NFP land? Consider the recent discussions amongst the Dismal set as to how many jobs are needed just to keep up with population growth. Justin Lahart has the skinny in today's Ahead of the Tape column:

"But there is a growing debate among economists about just how many jobs the economy needs to produce. The old rule of thumb used to be that the economy needed to produce as many as 180,000 jobs per month to keep up with new entrants into the labor force. But the labor force isn't growing as fast as it used to -- more people have gone back to school, retired early, or just quit looking. As a result, economists at the Kansas City Fed have argued only 120,000 jobs a month are needed to create jobs for would-be workers. In a speech last week, Chicago Fed President Michael Moskow put the number at 100,000."

Think about what that suggests as a population growth rate In a nation with 300 million people. Not only have the NiLFs -- Labor Force dropouts -- made the unemployment rate look better than it is, the same drop outs have convinced Fed Governors that less new hires are neccessary for "mere zero growth."

In other words, since the data isn't there to support proof that we are merely treading water at best, then let's change the basic requisites. I call that Moving the Goalposts.

This country is in for a very rude awakening.

<rant mode off>

>

Sources:
Nonfarm Payrolls Grow by 128,000;
Unemployment Rate Drops to 4.7%
CAMPION WALSH
WSJ, September 1, 2006 9:31 a.m.
http://online.wsj.com/article/SB115706304364251038.html

Data Deluge
JUSTIN LAHART
AHEAD OF THE TAPE
WSJ, September 1, 2006; Page C1
http://online.wsj.com/article/SB115706978395751251.html

Steady, Modest Job-Growth Pace Points to Fed Pause This Month
Compiled by Tim Hanrahan
WSJ, September 1, 2006 10:34 a.m.
http://tinyurl.com/pj7jl

Friday, September 01, 2006 | 10:25 AM | Permalink | Comments (75) | TrackBack (2)
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Comments

One thing that seemed rather odd was that jobs in residential construction and real estate supposedly increased slightly. Why are there more people employed building houses when new home construction is down 20%? Or selling them when sells are down 10%

Whatever the reason for it, the job loss from the housing slowdown is all yet to come (or be apparent.)

The WSJ had another article on banks exposure to real estate today. I bought more WM puts. ;-)

Posted by: Bob_in_MA | Sep 1, 2006 10:38:23 AM

Moving the goalposts is also consistent with the little "debate" (what debate?) that is going on regarding what level of inflation should be targeted. One Fed Governor (Moskow?) called the debate "healthy" last month. Then Bloomberg picked up on it a couple days ago saying the Fed seemed to be leaning toward allowing a higher level in the name of growth. Previously Bernanke had set the bar at 2% annual rate. So is it going to be 2.5% now? 3%? Who knows?

Posted by: Mark | Sep 1, 2006 10:39:31 AM

hello from germany

this report is a total joke.

nearly 95% of all jobs were from the "birth/death" model and they added 14.000 construction workers in this cycle?

in the last year near the peak they added 16.000 via the "bdm". this is to me proof that this thing deserves the label "enron" acounting.

http://immobilienblasen.blogspot.com/2006/09/us-arbeitsmarktstatistik-enron-lebt.html

Posted by: jmf | Sep 1, 2006 10:48:04 AM

I think someone else pointed this out about jobs in construction and housing -- if you have projects / land in the pipeline, and you think the market is rolling over, the smart thing to do is to jam everything out more quickly before prices start to drop. (This of course accelerates that effect.) Hence the growing new homes inventories and sales even as existing home sales drop. The number of houses coming down the pipeline may be down overall, but there's more pressure to get them out into the market quickly.

All of that accelerated construction effort will lend to some extra hiring, at least for a while.

Posted by: T | Sep 1, 2006 10:48:48 AM

I agree in full with the home team [i.e BR]-- but yet the markets climb...

So in the immortal words of someone, either 'no one knows nuttin' when it comes to the market, or the market is so inefficient, smarty pants like us can make a killing. Hmmm.

I guess that means your starting to build a big short position BR??

Posted by: HT | Sep 1, 2006 11:07:13 AM

Rumors of my death have been greatly exaggerated.

Regards,
Goldilocks

Posted by: S | Sep 1, 2006 11:10:21 AM

Hi Barry, We are in an election year. The spin and minuplation of the financial facts is amazing. I agree we are in for a rude awakening. Unfortunately it will not significantaly affect the very wealthy or the politicians.

Posted by: dave | Sep 1, 2006 11:10:52 AM

Typically, BLS doesn't screw around with the numbers. And in an election year, the Fed usually goes on Pause for the 2 or 3 meetings before -- although this is a mid-term election, so we can argue they are less self-restrained than during a Presidential election year.

As to Fed Governor speechifying, well, all bets are off as to what comes out of that . . .

Posted by: Barry Ritholtz | Sep 1, 2006 11:19:24 AM

Oh man. Just wait until the housing bubble bursts. Not only will there be no more refinancing for a quick infusion of cash, trillions in value will disappear. Add that to the deficit, and the coming recession will be NASTY.

Posted by: e_five | Sep 1, 2006 11:22:21 AM

"But the labor force isn't growing as fast as it used to -- more people have gone back to school, retired early, or just quit looking."

Brilliant. Like, "We've noticed a drop in patients who need long term care. A lot of them have just died because we stopped feeding them."

Posted by: Royce | Sep 1, 2006 11:23:11 AM

Barry: Is there any real way to measure the number of people not counted because they have stopped looking, become discouraged, their benefits have expired, or they have taken lower paying jobs?
I first heard of this talk about NiLFs in the recession of 1991-1994, but isn't it just guesswork?

Posted by: Larry Nusbaum, Scottsdale | Sep 1, 2006 11:29:25 AM

Royce: Actually, the subtext is, our healthcare has improved so much (over its already high standards) that many patients were able to leave the ICUs.

Posted by: cm | Sep 1, 2006 11:30:57 AM

Please, keep rant mode on! Someone needs to slap some sense into these people.

I'm sick to death of the legions of number spinners telling us the conditions we are seeing are not happening.

Posted by: Dave | Sep 1, 2006 11:33:40 AM

You keep posting negative news and yet the market keeps going higher. Someone is wrong. I follow your advice but I'm not getting any richer for it. Are you starting to doubt your year end target? DOW 8000? How in the heck can that happen now?

~~~~

BR:

Hey Steve (or Sam or SWood),

If you are following my advice, then you are long from June 13 (Markets Sketching Out a Tradable Low) or from early August (the Pregnant Pause).

Those are both trading calls, however, and they do not impact my longer term views ...

Besides, if I didn't publish a reality check here, where would you get it from? WallStreet? The Government? The Fed? The MSM?

Dont make me laugh . . .

Posted by: steve wood | Sep 1, 2006 11:36:53 AM

Larry: At least those not looking, or not taking (nominally) available jobs should be covered in the U-6 rate in section A-12 of the household survey.

Underemployment is harder to measure, don't most of us want to make more?

I don't know what benefits have to do with it. The only thing I can imagine is that when benefits run out, that takes a big chunk out of the motivation to pretend looking for jobs that are not there (for you at least).

Posted by: cm | Sep 1, 2006 11:36:55 AM

These numbers keep coming in "benign." And the angst of the bear seems to be growing.

When will data come out that actually shows a break in the economy, ya gotta wonder? We've been seeing cracks for some time. Then "benign" data. Then more cracks. Then more "benign" data.

I see so many open commercial construction also where I live, and I have to wonder where all these businesses are going to receive their revenue when the end consumer is so tapped out...or not?

Posted by: Michael C. | Sep 1, 2006 11:40:11 AM

i just find this hard to believe that in a clear downturn
they are assuming that nearly the same as last year.

nobody knows the formula of this math. you can easy manipulate. tranparancy is needed.

this time 95% of all jobs come from this "birth death model/bdm". the share is increasing month to month. the whole yera over 70% of all jobds were createt via the "bdm".

the strange thing is that nobody cares. the $ is up, the stock market is up. evrything is fine. until it isn´t.

i´ve to admit that our statistiks in germany are also very questionable. but the dimension of the us numbers is much much bigger.

http://www.immobilienblasen.blogspot.com/

Posted by: jmf | Sep 1, 2006 11:40:25 AM

cm- disagree. What's healthy about a labor market when wages are stagnant and people are dropping out? Rising wages, expanding benefits, expanding payrolls- these are a sign of booms.

Posted by: Royce | Sep 1, 2006 11:51:49 AM

The year end target was DOW 6800 not 8000. 6800 is not going to happen. I believe Barry has said the down draft could push out into 2007. 6800 is not going to happen then either.

6800 is a pretty large and bold prediction. Not sure if Barry really believed it or not, perhaps he did. But a prediction like that does get you some press. A prediction of 9500 which might have been more reasonable would result in a yawn so might as well make the prediction a whopper.

I am not accusing Barry of lying but what is that saying about lies. If you are going to tell a lie, might as well make it a big one. The bigger the lie and the more you defend it the more likely people will believe it.

Perhaps that is true of predictions as well. Predicting a 20% dip is not going to get viewed as anything other than someone who is in the bear camp along with the other 30% or whatever the number might be at the time. But predicting a nearly 40-45% drop, now thats something to talk about.

And talk about it we did. I am expecting a pull back in the markets, but 6800 ..... Grabing Barry by the lapels, throwing glass of water in face .... SMACK to the face. ""WAKE UP MAN, YOU'RE DELIRIOUS!"

~~~

BR:

QW, now that's closer to criticism I can respect.

At this point, I'd be surprised if we saw 6,800 in 2006. I'd also be surprised if we don't see a major correction anytime before yeasr's end.

My attitude towards forecasts are they are folly: I do them because everyone aks you and thats the game in the press. All forecasts are stale within 24 hours; Keynes said it best: New information came out and I changed my mind. Ned Davis uses the quote: "Do you want to be right, or do you want to make money?" and I agree.

I do, however, try to measure risk relative to reward. That detemines my posture and equity exposure. At this point, I see the risks as high and the reward as moderate. That doesn't make we want to go 100% long, but it doesn't make me want to short -- at least not yet. (This position is subject to change w/i 24 hours)

Posted by: qw | Sep 1, 2006 11:52:10 AM

As I said earlier, it all will be papered over as much as possible until after the election. Do you think it a coincidence that gas is dropping 10%+ even though oil prices are still in the $70 barrel range? Do you think it a coincidence that the market is going up although a recession is clearly coming? Look at the recent census data, real income down an average of 6% the last 5 years. How does anyone expect the economy to be expanding?

Posted by: Neal | Sep 1, 2006 11:53:49 AM

Just in case anybody's interested in backing up the rant with some #'s the first time new jobs was seriously less than appealing was in Q300 when only 84.3K new jobs were created on a monthly average. If we want to assume that the figure of merit (the old benchmark) is 150K jobs/month required for steady-state breakeven then we had a net deficit of about 66K jobs/month or 197K for the quarter.

If you run that logic forward, which is in effect saying two really important things - which have been and are implicit in many of Barry's arguments: a healthy economy creates at least 150K jobs/month and second, a growing economy creates much more than that - around 250K/month. Furthermore a recovering economy will go thru a period of 18months or more when it's creating 300-350K jobs/month.

Hopefully that's not too painful too follow-thru on the screens but following the logic the cumulative jobs deficit reached a nadir of 7.97 MILLION jobs in Q104. It is still about 7.47 million at the end of Q2 this year. In other words we've been loosing ground and never made up for lost jobs. Bear in mind that's out of an employed population of 135-136 million.

There in a nutshell is the driving engine and explanation for why people don't feel good about the economy (or Administration), why GDP is slowing and why business spending won't pick up the slack as the Housing ATM and construction fall off. Organic, self-sustaining economic growth happens when businesses invest in future demand and accelerate the economy thru employment growth in a virtuous cycle.

We've disguised the lack of organic growth with a high fever via Housing and low rates. You need to watch employment very carefully and anytime it's below 150K then trouble is building up.

Posted by: DBLWYO | Sep 1, 2006 11:57:07 AM

I have asked this before, but I will ask it again. Can anyone on this board point to ANY good news in the economy or is everything horrible?

Last time I posted this, I didn't get a single positive response which tells me there may be some "herd" thinking going on here (which is never a good sign).

Posted by: JDamon | Sep 1, 2006 11:59:01 AM

Neal,

The gas futures market is down 55 cents in the last month. Do you believe the government controls the gas futures markets? How do they get all those speculators to sell the markets down to prices that are lower than an "open" market would dictate.

Refining capacity coming back online in the gulf, Hurricane seasons turning out to be a yawner so far. BP incident in Alaska not being as bad as originally thought. Expectations had been setting up for a near worst case scenario in gas futures and when things got better the prices came off.

You need to learn a bit about markets before you make such unfounded claims.

Posted by: qw | Sep 1, 2006 11:59:52 AM

>>>I have asked this before, but I will ask it again. Can anyone on this board point to ANY good news in the economy or is everything horrible?

Last time I posted this, I didn't get a single positive response which tells me there may be some "herd" thinking going on here (which is never a good sign).<<<

Personal spending, commercial construction, gas prices...those are good news, no?

Posted by: Michael C. | Sep 1, 2006 12:06:22 PM

I guess falling oil is giving the bulls legs to keep pushing up... but the storm clouds are on the horizon, and at somepoint someone's going to yell stampede and it's going to be a reversal the other way in a thunderous herd...

Posted by: Chief Tomahawk | Sep 1, 2006 12:06:47 PM

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