NFPayroll Day
A couple of things to keep an eye on when the NFP numbers come out at 8:30am this morning:
1) Consensus is 115,000 for new jobs in December;
2) ADP and Monster.com job postings pointed to an actual contraction in jobs last month. That's something we haven't seen since mid 2003 (see chart below)
Note: I used to mock the ADP data as being so awful, but since the big BLS revision, ADP turned out to be more accurate than originally appeared. While the jury is still out, I am trying to remain open-minded about their analysis;
3) Look for job losses in Manufacturing and quite possibly Construction. The shrinking manufacturing base is a trend that has been in place for decades, but the slowing Construction hiring is more recent. The question is whether the strength in commercial building will offset weakness in residential. Given the unusually warm weather in December, construction crews might have kept on working. ( (Retail job losses will likely be seasonal).
4) The Key to the number will be how the market interprets that the Fed will view it:
• An (unlikely) upside surprise will be the last nail in the coffin for any immediate rate cut hopes;
• A weak number reignites expectations for a Fed cut sooner than later, eventually leading someone to pen a piece titled "The Greenspan Put Lives!";
• A consensus number would be the real surprise.
5) Actual Job losses -- a contraction -- hasn't happened for quite some time:
Total NFP Employment, with Month-to-Month % change (annual rates)
click for larger chart
Total NFP Employment, with Year-over-Year % change
click for larger chart
6) As the chart below shows, this remains the weakest job creation recovery in the post WWII era. And if this turns out to be the peak of the cycle, it increases the likelihood of a recession over the next 12-24 months. I remain in the camp that a recession is an increasing possibility, but not a sure thing.
Employment Post Recession
Chart Courtesy Spencer England Equity Review (SEER)
Sources:
Payroll Number Is Going to End Guessing Game
JUSTIN LAHART
January 5, 2007; Page C1
http://online.wsj.com/article/SB116796347598967795.html
Economagic:
NFP: Total Employment Period-to-period percentage change at annual rates
NFP: Total Employment Percentage change from same period last year
Friday, January 05, 2007 | 06:09 AM | Permalink
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I have reached the point of view that the Fed has created so much havoc and damage with their bubble policies it is hard to decide what they will do.
For the past three years, they, and speculative FCB's, have pandered to the wishes of big money speculators and trans-national corporations. In the process, destroying the US national savings rate, creating inflation, and inducing a bubble mentality in housing, commodities, equities, bonds, and credit.
How any good can come out of this, we shall see. Relying on the Fed to do the right thing has been a clear path to investment and savings losses. I have a feeling that will continue. Wall street is driving this boat.
It will continue to be more correct to try to guess what phase of the game the market masters are currently enforcing.
Posted by: blam | Jan 5, 2007 7:36:45 AM
There's absolutely no question in my mind that a dramatically weak employment number gets received by the market as a Greenspan/Bernanke/Milton Friedman put.
After the ad-hoc apologia Bernanke delivered to his idols, Friedman and Schwartz, is there any doubt he'd be internally predisposed to cut rates if employment worsened?
...Hardly.
The question is: Afterward, is the Fed capable of coming to the realization that monetary policy in the present macroeconomic dilemma would likely be sterile? (for reasons I've demonstrated)
...Like I've said, I doubt they read Eclectic.
Therefore, would it ever be possible for the Fed to understand that their next cuts just might likely begin to extend the macro into a condition of almost certain stagflation?
...Don't hold your breath.
Now, I realize this is all putting the cart before the horse, since even a quite weak BLS today will, by the end of the day, get blown off by pundits as being spurious.
Still, the bond market will launch if BLS is a way low surprise.
If Bernanke didn't then begin to evidence a rate cut, he'd have to unpublish his writings on The Great Depression.
---
Just purely for fun (I have no faith in my guess), I'll stab at the number. Let's just for the moment assume that ADP will prove over time to be a worthy advance indicator of what BLS will eventually tell us about employment (after revisions), and if we further assume that BLS's advance number today is beginning to catch the negative 'delta' that a weakening economy must ultimately demonstrate, then BLS today might show us a number that could initially indicate something worse for Dec jobs than it eventually proves to be after final revisions are completed. In other words, it might be a bigger drop in jobs today than even BLS will eventually log for Dec, after final revisions.
Since ADP has already said "-40k" and they've asserted that their number that is not revised (to my knowledge) anticipates BLS revisions, then what I've just written is in keeping with what they might view as a possible course of events.
Having said all of that... I'll stab at a guess...... BLS for Dec: "100k Loss"
Posted by: Eclectic | Jan 5, 2007 8:03:32 AM
167k. A lot
Posted by: theroxylandr | Jan 5, 2007 8:31:43 AM
You nattering nabobs of negativism, when will you learn to trust your Uncle Sam that everyting is OK. Nothing to see here, just move on. Go out and shop. Please.
Posted by: Neal | Jan 5, 2007 8:49:44 AM
Seriously, how else can the inflation flag be waved if there is falling employment? If contraction is shown, rates must be cut and the dollar will tumble.
Posted by: Neal | Jan 5, 2007 8:51:57 AM
ADP: -40,000 jobs
BLS: +167,000 jobs
So one of these reports is trash. Or maybe both.
Posted by: anon | Jan 5, 2007 8:59:08 AM
This report of +167k possibly indicates a need for rational people to re-think almost everything about the economy. Is that the message?
--
Still, BLS only claims an accuracy of plus or minus 430k in any given month.
If ADP's report is to be considered accurate, then we'd have to assume that their report of -40k would not be excluded from a BLS range of -263k to +597k (+167k plus or minus 430k).
My view is still unchanged. The fact that an economy is in transition (either way) is less likely to be discovered until the delta produced by the transition exceeds the statistical significance of the indicators that measure it.
There is no question that cumulative BLS reports have more than significantly indicated job growth... however, we can not know at present but that this +167k figure is simply failing to demonstrate an unseen delta that ADP may have more accurately discovered.
The ADP/BLS debate will only continue to rage now. But any attack on ADP after this BLS report has to occur on emotion, not rational science.
Posted by: Eclectic | Jan 5, 2007 9:05:21 AM
really a strong number.
but once again. the manufacturing segment has lost 12k and even retail lost 9k.
the construction number has to come down and i think that the mild weather and the rush to finish has dampen the real effect. here is really potential for a massive decline that will hit at a very fast pace!
another sector that will be hit hard are the financials. with all the trouble in housing these kind of numbers are not sustainable. we have seen lots of massive layoffs from all the mortgage related companies
In financial activities, commercial banking added 5,000 jobs in December.
Employment in financial activities was up by 153,000 over the year; job gains
occurred in insurance (46,000) and in credit intermediation (62,000), which
includes commercial banking.
the birth death model accounts for only a "third" of the gain.
fun to see how the markets will judge this kind of data. the potential for a "falling of a cliff" are growing in my opinion
Posted by: jmf | Jan 5, 2007 9:08:53 AM
Welcome to the new federal reserve bank authorities.
They just are reminding that when you think of a Central Bank think inflation, and remember that it cannot be deprived of its monetary policy by skimmers.
Posted by: Philippe | Jan 5, 2007 9:21:07 AM
I eagerly await Barry's spin.
Posted by: Fred | Jan 5, 2007 9:35:33 AM
barry doesn't follow the dictum: strong conviction loosely held!
Posted by: sam | Jan 5, 2007 9:50:27 AM
Give me a break! As I've said in previous posts, reviewing this data in a RATIONAL way is like asking a child with undiagnosed dyslexia to read.
Posted by: Teddy | Jan 5, 2007 10:02:20 AM
It's 1995! LOL! NOT! So, with small caps underperforming, and they are regardless of the pablum I read, and the R2K sitting at May highs along with every other broad index, what oh swami will a correction bring? Lower lows? A rounding top? Or, are we headed for another 30% gain on the S&P from here? The bulls better mount a charge early in the year IMO. Otherwise, I won't have to wait until the second half of the year to take their money.
Oops, I'm sorry, we have web 2.0 or Youtube. Btw, Myspace and Youtube aren't web 2.0. It's more like 1.01
Posted by: BDG123 | Jan 5, 2007 10:05:14 AM
1) The jobs data are too consistent to ignore.
2) The bears are going to argue that this is a lagging indicator.
3) The inflationary aspects are nevertheless going to test this dovish Fed. The costs of keeping rates low for too long will come back to haunt them as the economy slows.
Posted by: Anonymous | Jan 5, 2007 10:10:54 AM
really a strong number.
but once again. the manufacturing segment...
Haha... people's expectations have really been ruined by this business cycle.
Ten years ago a "strong number" was something in the 300,000-500,000 range.
No more I guess.
Posted by: super-anon | Jan 5, 2007 10:12:40 AM
1) The jobs data are too consistent to ignore.
Jobs numbers and unemployment data frequently remain healthy right up to a recession, and then suddenly deteriorate.
The fact that payroll data looks good (by today's standards anyhow) in no way precludes a recession later this year.
Posted by: super-anon | Jan 5, 2007 10:19:57 AM
The monthly data follows the principles of Quantum Physics.
Posted by: Teddy | Jan 5, 2007 10:20:21 AM
super-anon,
You are looking at the wrong survey. The HH is reporting consistently above 300k per month. And some months are > 600k. Jokes aside, labor market is strong.
BDG123,
In 1995, there was a lot of room to grow with unemployment high and consumers with savings. Not 1995. But it might be 1999. Can we get a blow off in the equity market like then? Sure. Are we near the end of the cycle rather than the middle. I think so. Where is the growth in consumption going to come from? The only thing comanies seem to be interested in buying is their own stocks or other companies.
Posted by: Anonymous | Jan 5, 2007 10:23:26 AM
super-anon,
You are looking at the wrong survey.
I am looking at past BLS payroll data.
Numbers from 1997:
506,000
339,000
307,000
298,000
268,000
185,000
148,000
278,000
401,000
And from the same survey in 2006:
154,000
200,000
175,000
112,000
100,000
134,000
123,000
230,000
Posted by: super-anon | Jan 5, 2007 10:30:07 AM
Mega-bubbles have to lose alot of energy before there is softness, slowdown, and
then contraction. Only then do you see your
quantum moves.
Posted by: zell | Jan 5, 2007 10:35:33 AM
super-anon,
You are right about the payroll survey. However, in this cycle, the more accurate one seems to be the Household survey. The HH survey numbers are comparable to its own 90s numbers. Why the payroll might be understating job growth is open to specualation but the numbers in the payroll survey keep getting revised up.
Posted by: Anonymous | Jan 5, 2007 10:39:00 AM
So, based on the BLS numbers, is the economy softening or is it taking off? Seems to me that Goldilocks is alive and well......
Folks, get over 1999/2000, that was a major, massive bubble in TECHNOLOGY stocks only!. look guys, the NAZ was over 5,100. It is now sitting in the 2,400 range some 55% lower than its all-time high. It probably won't reach that number again in my lifetime (I'm 39). THAT my friends was a bubble. What we are seeing now is a healthy market digesting economic numbers. Nothing special, no 40% parabolic rise in a years time, just a slow, upwardly moving market. What is so wrong with this picture? Impending doom and gloom, bombshelters, end of days, etc. Come on guys, get a bit more optimistic if only to make a little bit of money for a change.
Posted by: Jdamon | Jan 5, 2007 10:43:35 AM
Right, everyone hires in December during budget cuts to make the end of the year look good. Or maybe we can believe 43,000 teachers and bus drivers were hired mid term, when school is closed in December.
Maybe the 178,000 are at AT&T, oh sorry they are firing 10,000. Anyone that believes this number or doesn't think it will be revised hugely down is mistaken.
Posted by: me | Jan 5, 2007 10:46:26 AM
BDG:
Better lay off the java, (or red bull I imagine).
Posted by: Fred | Jan 5, 2007 10:47:15 AM
This job number was probably the worst outcome for the bulls. Stock market has been going up because they were hoping for the Fed to start cutting rates. Strong number has the Fed fighting inflation that does NOT exist.
Since the job numbers are a lagging indicator, the Fed will only cut after we are already in a recession and the cuts will come too late to save the economy.
Posted by: Repoman | Jan 5, 2007 11:17:47 AM
