NFP stinks -- and Some People Still Don't Get It

Friday, June 02, 2006 | 11:16 AM

Today’s NFP number stunk the joint up: 75,000. That’s half of the monthly population growth, meaning the percentage of people working (relative to pop) actually went down, if we are to believe this data. 

Astonishingly, some people STILL do not understand the data or the context of the weak job growth within this recovery. To wit, my friend Cody Willard – a telecom strategist – writes:

"Surely, Barry, you're not seriously trying to rekindle your argument about "job creation is not what it is typically at this phase of a recovery."

That statement has been a cornerstone of your bearish rants for the last couple years. Yes, I know you've been a "trading bull" and what not, and rightly so, but this economic argument of yours has been, in my view at least, wrong for the last few years and now that job creation is finally starting to slow --- years after your repeated flagging of how this "recovery" (You still call this a "recovery" btw?)"

Ahhh, poor Cody. He is lost in a sea of data, unable to see the truth. He believes the spin.

Rekindle? Just because you close your eyes, the boogie man doesn't disappear.

Hey Cody, please cite me some data revealing this to be an above-average private sector jobs creation recovery. Hell, I'll take average.

You won't, because you cannot.

Cody is engaging in several analytical foibles, but the best way to describe it is "ignore reality." But his subjective error does not change the objective reality for the rest of us: By any honest measure – e.g., NY Federal Reserve or Cleveland Federal Reserve research -- this has been the worst modern jobs recovery on record.

This is not a meme I am pushing or a Bear story I fabricated.

It just “is.”

This doesn't mean you run out and short everything; as I wrote last December, one should Never Confuse Economic Analysis With Trading.

But comprehending the reality of the economic situation is important. Why does this matter?  What Cody fails to consider is the importance of understanding the specifics of how a recovery comes about, and how it compares to prior recoveries. What it means as the massive government stimulus that goosed the economy begins to fade. What happens when the Pig is finally thought the Python?

I expect that as we begin to slow, there ain’t a whole lot of fat to get sliced. As unemployment starts ticking up, it will not be pretty. It suggests the next recession will be more severe than the last one. 

Yes, Virginia, there is inflation. And yes, Cody, this has been the worst Jobs recovery since WWII. But if you want to believe in Santa, who am I to disabuse you of that notion?


UPDATE:  June 2, 2006: 12: 47pm

Cody and I finish the debate below


Cody responds:


That Rocking Economy From the Past
6/2/2006 12:42 PM EDT

Barry, nice job ignoring the points that you've been trying to make using your repeated bearish rants about how this job growth cycle wasn't up to a handful of other job growth cycles that you've measured using the incredibly silly and faulty data provided to you by a bunch of politically motivated bureaucrats.

Nobody's arguing that the results of the way you've bothered to measure job growth show that this cycle pales in comparison to a few recent ones in the past 50 years. And that's relevant to my investing decisions how?

The part that I've always taken issue with and that I continue to take issue with has nothing to do with your use of government data. It's all about your economic conclusions based on that data. Such as, in the post I linked to earlier this morning, when you wrote in April of 2005, "And as I have lamented over and over again on this site, an economy unable to create new jobs at a robust pace -- like this one has failed to -- is not a healthy economy."

It was indeed a healthy economy.

Do I think that today's economy is as healthy as it was last year when we debated its health? No. That's partly why I remain mostly in cash.

Do I think that today's job growth number means that this economy is doomed? No. That's partly why I will be looking to start buying stocks again soon.

The job growth during the last few years was plenty to keep this economy strong and to keep the earnings growth of my favorite stocks going strong. That is what matters, not whether you've found a way of determining that payrolls as measured by the government are growing in the same way they happened to when Elvis or when the Beatles or when Pearl Jam reigned.

To which I reply:


Now we get to the Heart of the Matter
6/2/2006 1:19 PM EDT

Ahh, Cody, now we get to the heart of our economic differences.

In my analysis, this has been an extremely aberrational, stimulus driven economy. It's relied on government handouts -- big tax cuts, deficit spending, two wars, ultra low rates -- as opposed to the normal organic growth we have seen under normal circumstances.

You think "It's rocking."

My frame of reference is 1973 (I disagree with those who think the 1929 comparison is more apt). This framework is part of the reason I expect there to be major economic dislocations in the future.

You claim it is "indeed a healthy economy."

The gov't stimulus during the past few years was sufficient to keep the economy moving forward. Earnings growth has been driven in large part by government spending, by overseas demand, by corporate cost cutting, improving efficiencies and productivity gains.

The consumer has exchanged 3 trillion dollars worth of home equity for assorted "stuff." Their savings rate is negative, and their real income has lost ground.

This is what you describe as a "strong economy."

As to Equities, many studies have shown that the ideal entry for stocks is hardly when earnings growth is terrific but softening; Rather, it's when year over year S&P500 earnings gains are poor, but improving.

Time will tell which of us is correct. I think we will know by January for sure who's right. Dinner's on the loser...

Cody's reply:

Re: The Heart of the Matter
6/2/2006 1:37 PM EDT

Hey, Barry, don't put words in my mouth there, buddy. I said it WAS a rocking economy last year when you said it WASn't. That's past tense.

Aberrational? Oh, as if there's some standard of normalcy for the economy? LOL. What I wrote is that you have been dead wrong in lamenting the health of this economy FOR THE LAST FEW YEARS. Past tense, see? Yes, I am now worried that this economy IS no longer healthy. Present tense, see?

Fun stuff, man. Love the debate.

My turn:

Potato, Po-tah-toe
6/2/2006 2:21 PM EDT

So we both are now saying the economy is decellerating and heading for trouble?

It appears our differences is how we got here: I say its been a long time coming, 'cause she never was that healthy to begin with; you say the economy WAS rocking but is now a cause for concern.

So where do we really differ? I still adhere to the belief that understanding the actual health of the economy beneath the government data. Is this a healthy expansion? Where is the growth? What sectors are doing well and why?

I believe the key to understading what could happen in the future is how we got to where we are now. Again, my analytical read is because of the government-stimulus driven strength, any subsequent weakness may potentially be severe. I tend to agree with Northern Trust's Paul Kasriel, who has said, this is an "accident prone economy."

What say ye?

Cody's last word:

Potatoes...or carbs?
6/2/2006 2:32 PM EDT

Barry, that's two posts in a row that you've put words in my mouth. Sigh.

Look, I am concerned about the health of this economy for the first time in a long time. That's far different from being in your camp of (STILL, I might add) saying that we're headed for trouble.

My last words:

We do disagree!
6/2/2006 3:33 PM EDT

I don't want to put words in your mouth, Cody. I am merely inquiring as to where we have key disagreement. I think our discussion today has clarified where we are at odds.

On a related note (and answering Richard Suttmeier's question), a study done by Asha Banglore (also of Northern Trust) back in April of 2005 found 42% of all new private sector jobs were Real Estate related.

This has been fun, Cody, and I am looking forward to checking out your new digs next week. Enjoy the weekend, and be sure to cacth tomorrow's linkfest (now with more niacin than before!)


Friday, June 02, 2006 | 11:16 AM | Permalink | Comments (67) | TrackBack (2) add to | digg digg this! | technorati add to technorati | email email this post



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Listed below are links to weblogs that reference NFP stinks -- and Some People Still Don't Get It:

» Indications of slower growth from Econbrowser
This week's data paint a picture of slowing growth. [Read More]

Tracked on Jun 3, 2006 12:57:08 PM

» Barry vs. Cody from
The Big Picture blogger Barry Ritholtz has been engaging Cody Willard on todays unexpected low employment numbers. Willard says that Ritholtz's argument that the last couple of years have been a jobless recovery is wrong. But those are the details.... [Read More]

Tracked on Jun 5, 2006 1:10:45 PM



do you still suspect that we will visit lower lows over the coming weeks as previously suggested. looks to be following a classic abc pattern with the indices? take care.

Posted by: erik | Jun 2, 2006 12:13:55 PM

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