NFP: Even Worse Than Reported
Over the past few years, we have railed at the prettyfied numbers that come out of BLS regarding NFP job creation and the unemployment rate. From the Birth Death Adjustment to the understated unemployment rate, the official data (and corresponding headlines) painted a very misleading picture of what was going on. No conspiracy, mind you — just a creeping bias that has slowly distorted the data.
Hence, the past few years of aberrational, credit-driven economic growth was hidden from the public view. Many (tho not all) of Wall Street Economists were too hapless or cowardly to point this out. And some even cheerleaded the absurdity of the “Goldilocks” BLS data. Some simply declared the US a Nation of Whiners.
America's Two Auto Industries
Fantastic article in the WSJ today about the pending bailout plan to GM, Ford and Chrysler.
America has two auto industries. The one represented by GM, Ford and Chrysler is Midwestern, unionized, burdened with massive obligations to retirees, and shackled to marketing and product strategies that have roots reaching back to the early 1900s.
The other American auto industry is largely Southern and non-union, owes relatively little to the few retirees it has, and enjoys a variety of advantages because its Japanese, European and Korean owners launched operations in this country relatively recently. Their factories are newer, their brand images and marketing strategies are more coherent -- Toyota uses three brands in the U.S. to GM's eight -- and they have cars designed for the competitive global market that exists today.
Hire This Man!
Depression era flashback: Walking to work on Friday (42nd St and Vanderbilt), I bumped into Paul Nawrocki. He is looking for a job in Operations without much success. He got the idea for the sandwich board from an ex-Lehman employee who found success with it.
Open Thread: What Now?
Ok, we have the Presidential election behind us, and ugly NFP yesterday (more to come) even more Bailouts soon (more AIG, more GM, who knows what else).
Market volatility still remains crazed, and we are nearing key levels of support. Earnings have been punk. The consumer is MIA. Credit is improving, Housing still stinks, and the deleveraging seems to be never ending. The Eliot Wave folks are waiting for a nasty wave 4 (or is it 5?) and
A Closer Look at Employment Data
The NYT had a terrific run of charts in the online version:
Change in NFP
Part Time Workers Who Want Full Work
U.S. Jobless Rate Hits 14-Year High
PETER S. GOODMAN
NYT, November 7, 2008
Non Farm Payroll for October 2008
Once again, I am en flagrante delicto just as this report hits.
Please report the details in comments . . . .
Waiting for a FUGLY Employment Situation Report
Bob Farrell, Merrill Lynch's now retired dean of Market Strategy, used to say "News doesn't drive the markets, markets drive the news."
That's worth keeping in mind in light of the recent slew of bad news: Bleak forecasts from Cisco (CSCO) and General Motors (GM), slumping sales at retailers, state and municipal budget shortfalls.
Then, there is the mother of all economic indicators, today's Non-Farm Payroll report. Bloomberg notes that BLS "will probably report that the jobless rate climbed to a five-year high of 6.3 percent in October" and that "Payrolls shrank by 200,000 workers, the biggest decline since the start of the Iraq War in March 2003." The Employment Situation report is released at 8:30am today.
There are a few things that you should keep in mind when that report comes out:
1) Any given report is irrelevant. However, the employment trend is very important. Are jobs being created or lost? Are recent changes accelerating?
2) The BLS headline number for Unemployment -- U3 -- tends to under-report the full extent of job losses; A better gauge as to the health of the labor utilization is the broader U6;
3) Watch wages & income as well as changes in the hours worked. We've seen a mass "stealth layoff" as companies cut people back rather than fire them. Each of these may hold clues as to further pressure on the consumer;
4) The Birth Death adjustment continues to overstate the amount of new jobs created, especially in the finance and construction industries;
5) Reporting monthly changes in a labor market of a 140 million people with any degree of precision in real time is a difficult, thankless task, highly subject to revision.
Regardless, we should expect an acceleration in job losses for the next 6 months as the worst of the credit crisis shows up in the data.
Unfortunately, the NFP we have seen so far only reflects the mild recession we have been in since January. As the economic contraction deepens, and prolongs, NFP is only going o get worse -- potentially, much worse. That's a given. The question for investors is how much of the weakness, and coincident earnings recession, has been fully priced into the markets.
Undercounting Under-Employment (November 2008)
Rosy Jobs Rate Has Thorny Underside
Tomorrow is NFP day, and I am expecting a doozy of a number: a loss of 250-300k jobs, and the Unemployment rate ticking up towards 6.5%.
But even that number does not accurately portray the amount of employment damage that has been done the past few years. Indeed, one of the ways we correctly anticipated the economic falloff was by analyzing the weak employment data beneath the headlines over the past few years.
Does that relatively mild U3 unemployment rate accurately portray the employment circumstances? U3 is the official UE rate, but the BLS also reports a full -- and much uglier measure -- U6. I've long said that the U6 number is more accurate, and more and more people are recognizing that as the case.
Dan Gross of Slate and Newsweek has been in the same camp for quite a while. A column of his from October is worth resurrecting prior to tomorrow's Employment Situation Release. NFP. Dan observes:
"It's hard to overstate the poor numbers coming out of Wall Street in recent months. But could it be that we're overstating the gravity of the situation? As job losses have mounted and consumer confidence has plunged, policymakers, news organizations, econo-pundits, and even some of my Slate colleagues have noted that the unemployment rate, which rose to 6.1 percent in September, seems to be at a nonrecessionary, noncatastrophic, low level. The unemployment rate is still below where it was in 2003; and between September 1982 and May 1983, the last very deep recession, it topped 10 percent.
But maybe the employment data are much worse than they seem. In the past year, the two key measures of employment—the unemployment rate and the payroll jobs figure—have been poor but not awful. The unemployment rate has risen from 4.5 percent a year ago to 6.1 percent. And in the first nine months, 760,000 payroll jobs were lost. This is unwelcome but not catastrophic. So why do things feel so bad? It's not because, as Phil Gramm suggested, we're a nation of whiners. And it's not a matter of columnists and spin doctors shading the numbers to make things look worse.
Rather, these two figures are undermeasuring the weakness in the labor market. By some measures, in fact, the job situation is worse than it has been at any time since 1994.
Wanna know why? Major changes in the BLS methodology since 1994. As Dan writes:
"BLS has been compiling alternative measures of labor underutilization. There are many different varieties of labor underutilization. There are marginally attached workers: "persons who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the recent past." There are discouraged workers, a subset of the marginally attached crowd, who have "given a job-market related reason for not looking currently for a job." There are people who work part-time because they can't find—or their employer can't provide—full-time work. There are people who have left the work force entirely. Neither the unemployment rate nor the payroll jobs figure captures the plight of many of these folks.
The alt.jobless rate was waring of trouble long before the U3 headline data did. U6, the broadest measure of unemployment, rose to 11% in September. That's the highest level since the data series started in 1994. Dan points out that Its also "significantly higher than it was in the last recession, in 2001. . . The unemployment rate may still be historically low, but the underutilization is historically high."
What does this mean for tomorrow's number? Only that the economy has been far worse, for far longer, than most investors may realize.
Unemployment Reporting: A Modest Proposal (U3 + U6) (June 2008)
Pervasive Pollyannas of Prosperity (July 2008)
Persons “Marginally Attached to the Labor Force” +B/D (July 2008)
The 20-Hour Workweek
The unemployment rate seems low. That's because it's not counting all those underemployed workers.
Slate, Oct. 22, 2008, at 3:59 PM ET
Back to Work
Congratulations to President-elect Barack Obama on his decisive victory. And to John McCain -- a truly great American hero who delivered a gracious and patriotic speech.
Now that this historic election is over, we can return to the markets and the economy. We will closely watch and discuss Obama's appointments to key economic posts, starting with Treasury Secretary.
And, we still have an economic crisis to deal with, a housing mess to unravel, and a possible second stimulus program coming up. Up next: Non-Farm Payrolls on Friday, and I expect it to be a disaster.
Plus, the continued redesign of the site is going to get tweaked. I've heard your issues, and we will address them-- perhaps even to solicit your ideas for design changes. The Cafe continues to attract some very high quality contributors also.
Time to get back to work.
Economics versus Politics
One of the things this election will be notable for is how well the Press used digital media and interactive internet to dissect the issues and polls. I've gathered a slew of them and posted them in the Digital Media Tab.
Here's a terrific example: Forget the polls for a moment, and consider instead what might be driving them.
The WSJ's Real Time Economics does just that, looking at a state-by-state polls compared to key economic indicators. These are changes in home prices, employment, and income:>
State-by-State Polls Compared to Economic Indicators
WSJ, November 1, 2008, 1:47 pm