Its Non-Farm Payroll Day!
Yeah, its that god-damned time of the month again.
The consensus for NFP is for 115,000, with a range of 50,000 to 147,000, according to Barron's/Dow Jones.
A few statistical oddities make today's number, which has been touted in the media as all important, somewhat more unpredictable than usual:
• Teaching jobs (education, non-private) have been declining over the summer. That is an aberration which should get fixed this month. In today's WSJ, Justin Lahart notes:
"One wild card is the way the government counts teacher jobs. The August report registered a loss of 32,000 public-school teaching jobs, which came on top of 50,000 lost teaching jobs in July. "While it is possible that some school districts around the country have downsized this year, we think it is more likely a number of districts have simply changed the timing of the start of their school year," economists at Lehman Brothers noted ahead of the report."
• Weak ADP Report:
"Nonfarm private employment grew 58,000 from August to September of 2007 on a seasonally adjusted basis, according to the ADP National Employment ReportTM. The estimated change in employment from July to August was revised down by 11,000 to 27,000.
This month’s ADP National Employment Report was the third consecutive weak reading and confirms the recent deceleration of employment.
In September, employment in the service-providing sector of the economy grew a moderate 97,000, while employment in the goods-producing sector declined 39,000. This marks the tenth consecutive monthly decline in the goods-producing sector. Employment in the manufacturing sector declined 22,000."
• Birth/Death adjustment has been modest in past Septembers. Stephanie Pomboy of MacroMavens notes:
"Loath as I am to bet against the BLS's ability to manufacture jobs, the birth/death factor, which has single-handedly accounted for 1.1m (or 70%) of the 1.5m jobs 'created' over the past year, is lower in Sept. than any other month of the year after January.
Last year, the Sep birth/death contribution was 13k, versus an average monthly contribution of 93k jobs. Given the uptick on Continuing Claims, Jobs Hard to Get (in the Consumer Confidence report) and the record low notched in Help-Wanted Ads, the potential for a negative surprise seems high...
I agree with Stephanie that a downside surprise is, well, not much of a surprise (recall our years long success with betting the Under).
• Revisions: This is another wild card that may surprise. We know the BLS has been over-stating small business job growth, most especially in construction. However, as BLS skeptic Bill King has observed "Last month, the BLS attempted to remove some of these jobs." Perhaps they have gotten religion over the absurdity of the B/D adjustments.
On a related note (and for the record), I am not in the conspiracy camp; I beleive the statisticians at the Labor Department do the best job they can. They release all of the data they have on NFP, Inflation, etc. -- warts, and all. Whatever biases that are inherent in the BLS output comes from the very senior people who are in charge of tweaking the master models.
Regardless, the revisions might surprise.
~~~
How will the markets react? Well, a strong number reduces the likelihood of a Fed cut . . .. but it also lowers the likelihood of a recession.
A poor number might generate a knee-jerk short term rally, increase the Fed Fund Futures markets odds of further rate cuts, but also increase the odds of a recession. And no matter you might have heard on TV, recessions ain't good for profits or stock prices.
As we have noted in the past, its only one monthly data point, the overall trend is what matters most . . .
UPDATE OCTOBER 5, 8:43am
September non farm payrolls rose by by 110k, ever so slightly under consensus. There were very large upward revisions, of which ALMOST ALL were in Govt jobs. This is the Teacher/Education revisions we discussed above.
However, private sector jobs were revised upwards a grand total of 5,000. ADP seemed to get the Private Sector job number pretty dead on (73k)
The most interesting news in the report was the Average Hourly Earnings -- they rose 0.4% (0.1% more than expected) -- and were up a substantial 4.1% y/o/y. This may improve the outlook for consumer spending, but also reduces Fed Cut possibilities.
The US Dollar is rallying on the news, implying the odds of another Fed Cut are lowering. Rate cut odds for a 25 bps cut at the October meeting have fallen to 52% (from 72% as of yesterday). The odds of a total of 50 bps by yr end is down to 16%, from 40% yesterday.
For the year ending March 2007, the Benchmark revisions were down by 297k. As Miller Tabak's Peter Bookvaar notes, "there were 297k less job growth than initially thought, thus making Govt data tough to believe in month to month. The Bottom line: ex out the noise from Govt jobs over the past few months and private sector job gains are averaging just 74k over the past 3 months."
>
Sources:
Weak Economy Doesn't Always Spell Job Losses
Justin Lahart
WSJ, October 5, 2007
http://online.wsj.com/article/SB119154070011049571.html
Analysis of September 2007 Report
ADP, Wednesday, October 3, 2007, 8:15 am EDT
http://adpemploymentreport.com/PDF/FINAL_NER_Report_September2007.pdf
Friday, October 05, 2007 | 07:41 AM | Permalink
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Comments
Sept Payrolls are expected to bounce back from the Aug weakness with a gain of 100k vs -4.
Averaging the 2 mo's together will likely be a better gauge as public school teacher jobs was the swing factor in Aug as it's been difficult to seasonal adjust b/c of the differing dates that kids go back to school.
Looking at private sector jobs will likely be the better way to go today. We know there has been very little firing as measured by the low level of initial claims but have seen a reluctance to hire in light of the slowing economy.
The unemployment rate is expected to tick up to 4.7%, the highest since Aug '06. Avg hourly earnings are expected to rise .3%. We will also see the annual benchmark revision for the yr ended Mar '07 and its estimated to be down.
Posted by: Peter | Oct 5, 2007 8:12:24 AM
Well, I see you are playing after all... or are you? I didn't see a number from you.
Oh, hell... I'll play. It's free.
-- down 15,000 --
Posted by: Eclectic | Oct 5, 2007 8:13:05 AM
cant wait for bagdad bob's(jack bouroudjian) spin on the number.....
Posted by: jake | Oct 5, 2007 8:17:51 AM
The problem is that, outside of some significant external event that might indicate the likelihood of a significant downturn, the models that *predict* employment are still the slaves of past employment.
Thus, if some trend of reversal is being hinted at here:
http://www.adpemploymentreport.com/ner/charting.aspx
...even if ever so faintly, then ultimately some BLS NFP must surprise us all, no differently than a blind man would be surprised riding in a car when topping a hill.
Posted by: Eclectic | Oct 5, 2007 8:22:45 AM
upward revs??
Posted by: SINGER | Oct 5, 2007 8:34:20 AM
Reliability of the estimates,Statistics based on the household and establishment surveys are subject to both sampling and nonsampling error. When a sample rather
than the entire population is surveyed, there is a chance that the sample estimates may differ from the “true” population values they represent.
The exact difference, or sampling error, varies depending on the particular sample selected, and this variability is measured by the standard error of the estimate. There is about a 90-percent chance, or
level of confidence, that an estimate based on a sample will differ by no
more than 1.6 standard errors from the “true” population value because
of sampling error. BLS analyses are generally conducted at the 90-percent level of confidence.
For example, the confidence interval for the monthly change in total employment from the household survey is on the order of plus or minus 430,000. Suppose the estimate of total employment increases
by 100,000 from one month to the next. The 90-percent confidence interval on the monthly change would range from -330,000 to 530,000 (100,000 +/- 430,000).
These figures do not mean that the sample
results are off by these magnitudes, but rather that there is about a
90-percent chance that the “true” over-the-month change lies within this interval. Since this range includes values of less than zero, we could not say with confidence that employment had, in fact, increased.
If, however, the reported employment rise was half a million, then all of the values within the 90-percent confidence interval would be greater than zero. In this case, it is likely (at least a 90-percent chance)
that an employment rise had, in fact, occurred. At an unemployment rate of around 5.5 percent, the 90-percent confidence interval for the monthly change in unemployment is about +/- 280,000, and for the monthly change in the unemployment rate it is about +/- .19 percentage
point.
Posted by: SINGER | Oct 5, 2007 8:43:02 AM
now the government is fudging employment numbers along with inflation numbers...
Posted by: jake | Oct 5, 2007 8:45:28 AM
September in line as expected, August upwardly revised from -4K to +89K. Did the Fed jump the gun in lowering rates a half point? In the financial market bizarro world that has been in play the last few weeks, this good news may end up being bad for the street.
Posted by: W.Edwards | Oct 5, 2007 8:48:37 AM
knee jerk reaction is UP for stocks, lets see if it holds now that multiple fed cuts are probably off the table.
Thing is, jobs growth is still decelerating, a sign of a mature economy, but not nearly as bad as some have expected. Soft landing seems in line and if the environment is ripe for stocks and the economy, that means probably rate hikes in 2008!
Posted by: UrbanDigs | Oct 5, 2007 8:51:11 AM
From -4 to 89K? That's quite a large revision, is it not?
Posted by: Joe Klein's conscience | Oct 5, 2007 9:03:47 AM
The devil is always in the details. We will have to parse the numbers to see what BLS has been up to with it's alchemy.
Posted by: SPECTRE of Deflation | Oct 5, 2007 9:07:31 AM
The hedgies (& Paulson) got to the August data to get their rate cut. What a joke.
Gain in government August employment was created from an initial loss.
Posted by: Josh | Oct 5, 2007 9:07:41 AM
How can the stock market be a discounting mechanism when we have liars and thieves running the numbers?
Posted by: SPECTRE of Deflation | Oct 5, 2007 9:10:50 AM
Barry, just read this at immobilienblasen Blog. Enron comes to mind, and I'm wondering if Ken Lay danced?
While Citi teams up with KKR / FT
KKR and Citigroup are understood to have agreed to form an off-balance-sheet vehicle with about $5bn of equity and $10bn of debt to buy impaired loans, which could include some from Citi’s investment bank.
The joint venture brings together the private equity firm responsible for some of the biggest leveraged buyouts in the run-up to the credit crunch and the bank that agreed to finance many of those deals.
The vehicle could allow Citi to sell some leveraged buyout debt, which it has underwritten but is struggling to syndicate, as well as other troubled loans.
> "Could".... LOL! Conflict of interest...?
Posted by: SPECTRE of Deflation | Oct 5, 2007 9:19:52 AM
These numbers are not that great:
-14,000 construction jobs (housing)
-18,000 manufacturing
110,000 people are happy that they have a new job, but how happy is America if these jobs are low paying and low skill? Do we just become a low paying service economy with a space program? Where is the beef? I am deeply concerned.
What is driving the economy? We are just spending on consumer items made in China. Not the kind of economy one would hope for.
Posted by: Ames Tiedeman | Oct 5, 2007 9:30:15 AM
Posted by: Ames Tiedeman | Oct 5, 2007 9:30:34 AM
"now the government is fudging employment numbers along with inflation numbers..."
And your explanation of the BD Model where 3/4 of the jobs are made up out of thin error (sic). I think Josh is on the right track. After what has been done to the justice department (approving torture comes to mind) why not the BLS?
Posted by: me | Oct 5, 2007 9:43:25 AM
Thank god for government jobs. The quality of this report is lousy. These are not economy growing jobs.
The bulk of the gains in September hiring came in service industries, including an addition of 44,000 in education and health services and 37,000 in the government. In the goods-producing sector, another 18,000 factory jobs were shed and 14,000 construction jobs were lost.
So we now have the government more and more carrying the economy on its back and borrowing from abroad to cut their paychecks. Perrrffectt, just perfect. Oh, and 100K swings from month to month, the BLS just lost any credibility it had.
Posted by: Stuart | Oct 5, 2007 9:45:52 AM
"110,000 people are happy that they have a new job, but how happy is America if these jobs are low paying and low skill? Do we just become a low paying service economy with a space program? Where is the beef? I am deeply concerned."
This goes right to the senior economist or economic write at the wsj editorial page, goofy Moore bragging about 7 million jobs created. Why aren't they embarrassed? Ronnie created about 20 million and Clinton 24 million jobs in the same period.
If we needed 150,000 jobs per month to break even in the 80 and 90, why now is 100,000 sufficient? And those are made up with the BD model. They can't even come up with jobs the old fashioned way.
Posted by: me | Oct 5, 2007 9:47:26 AM
Of course Prince and CITI will have to get in line to be investigated. I know I should be talking about the fictitious jobs numbers, but the fictitious accounting numbers are more fun because it may well lead to criminal charges, and we can't really charge the BLS with anything but stupidity...they are the government.
WSJ: "a criminal probe into Bear Stearns's two collapsed hedge funds."
Posted by: SPECTRE of Deflation | Oct 5, 2007 9:47:57 AM
Let us also keep in mind that other than Monica's, many of those Clinton jobs created Internet millionaires from folks wise enough to bail out of their stock options the moment their lockups expired.
Posted by: lurker | Oct 5, 2007 9:54:28 AM
I posted his earlier but it's such a perfect example of the mindset of why these guys get into trouble...
buy-and-hold investors?????????
near default rates?????????
"In a new research report entitled "Leveraging CLO illiquidity premia", JP Morgan says that the combination of historically wide CLO liability spreads and near-zero default rates makes this an optimal time for buy-and-hold investors to consider investing in CLOs-squared. It says this is a way to efficiently monetise the current illiquidity created in the "spread rout of 2007"."
Posted by: Stuart | Oct 5, 2007 9:56:47 AM
I can't believe how CNBC spins a weak 110,000 headline number, below WSJ consensus, as a strong number that beat expectations.
Posted by: Steve Barry | Oct 5, 2007 10:05:40 AM
how many jobs are needed to keep up with the workforce? I've read 125-150K.
Posted by: Steve Barry | Oct 5, 2007 10:14:37 AM
Steve Barry, when watching CNBC one must always remember to use the laugh trac button. I have an old one from Archie Bunker days. Works very well. The greatest invention in the last 40 years is the mute button!
Posted by: Ross | Oct 5, 2007 10:15:21 AM
