Liscio Report on NFP
I mocked yesterday's NFP report, and a sizably stunning percentage of readers didn't get the humor (and on a day off, too). My assumption is that these are people who are unfamiliar with my slightly skewed sense of humor.
To contextualize that, a few more words are in order, and then a nod to another voice on NFP worth hearing.
Let's begin with a quick word on cognitive bias. Humans are guilty of this -- selectively perceiving and recalling what agrees with their world view. We are all guilty of this, and while we cannot escape it, being aware of it at least allows some measure of recognition, and perhaps, adaptation to the phenomena.
Let's use the NFP data as an example: Consider another bias, the Human tendency to overemphasize more recent data versus the totality of information and the overall trend. This is a cognitive bias known as the recency effect. Despite the overwhelming evidence showing this to be a generally weak jobs recovery (the worst since WWII), our primate brains interpret a single good data point as proof of something better. Perhaps this helped our ancestors recognize the coming of seasonal changes; those with the bias mated in the spring and passed on their genes, and those without didn't (hence no progeny). Alex, I'll take Pop-Evolutionary theories for $100, please.
Regardless, we also see some of the soft prejudice of low expectations in yesterday's data: 180k is hardly a rockin' strong number, relative to population growth,. Put that into the context of recent expansions such as the 1990s. Oh, and in that more recent period, there was no BLS Birth/Death adjustment, responsible for nearly a million fictitious jobs in 2006.
For those of you who may have missed my sarcasm, consider the Liscio Reports' irony-free take on yesterday's NFP. Here's an excerpt via Barron's:
"As our keen-eyed friends at the Liscio Report, Philippa Dunne and Doug Henwood, observe, this was a "good employment report but not the blowout some are taking it for." For openers, the perceptive pair surmise that just as February's stingy job additions were partially the result of cruddy weather, March's upside surprise got "a compensatory meteorological lift."
The rise, however, was concentrated in a relatively few sectors. Once again, they note, health care and bars and restaurants were major sources of fresh hiring (and once again, we might interject, these are typically not big-bucks jobs). Retail did pick up nicely, to be sure, but manufacturing, alas, couldn't kick the habit of shedding jobs.
Ominously, too, Philippa and Doug point out, professional and business services, "the heart of the post-industrial economy" was a loser, its first decline since November '04. And temp employment made it two months in a row on the minus side, indicating "not a lot of pent-up hiring demand for future months."
And they add that the household total, in which desperate bulls invariably seek solace when the payroll numbers are soft, was up 420,000, but only after an extraordinarily depressed February, which suffered a loss of 278,000 slots. That works out to a pretty feeble average over the past two months of 71,000, hardly suggestive of "underlying strength that the establishment survey is missing."
As we intimated, at first blush investors are likely to find the apparent strength of the job market as discouraging any thought the Fed might have entertained to cut rates in order to shore up the economy. But we suspect that, to judge by the abundant evidence that the economy is slowing and will continue to do so as the collapse in housing plays out and the consumer's urge and ability to spend fade, there'll be more than one disappointing employment report in the months to come." (emphasis added)
That sounds about right, and -- dare I say it? -- fair and balanced . . .
Little Bit of Blow
Barron's, April 9, 2007
graphic courtesy WSJ:
March Jobs Data Show Vigor
Broad-Based Hiring, Rising Wages Dash Rate-Cut Predictions
WSJ, April 7, 2007; Page A3
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With a slowing economy, tightening lending standards, and a negative savings rate, it is rather fanciful to believe the birth/death model created 128,000 jobs - in fact, I would say beyond fanciful thinking and into full blown fantasy, which oddly enough is the same locale in which resides Goldilocks and the Three Bears.
Posted by: Winston Munn | Apr 7, 2007 9:41:30 AM
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