A new report was released today showing significant improvement in the labor market today. As you know, there were 6 people unemployed for every 1 job opening not too long ago, but that has changed. Now there are only 5.5 people for every 1 job opening, let the good times roll! While this is good news it is not at all very promising considering the government is hiring thousands upon thousands for the census.
Does anyone even ask themselves if the recent positive data is only indicative of a low quality unsustainable recovery? From my point of view that is all it is, a low quality unsustainable growth spurt. How a negative 36K job report last week was considered good is beyond me as most bulls predicted positive job growth now. What I found very interesting is the fact that all the pundits were blaming bad weather for a bad jobs report when there were no or limited snow storms when the survey was conducted. Furthermore, snow really does not cause a huge decline in payrolls, a statistically significant impact anyhow, but let’s not let the facts get in the way of a recovery story.
There have also been many large firms still forewarning of layoffs coming in the near future. While this may make for higher profit margins it is not good news for a country that is over 2 year into a recession, or whatever we want to call it now, and we are still losing jobs, albeit at a lower rate. Less bad is not good, but that is how the data is being spun which is ridiculous. It is not that I want the market to crash or that I want things to get worse, quite the opposite in fact, I just want an honest take on what is happening out there. Telling people that they have lying eyes is just crazy, but that is what everyone is doing.
This is true of the government data which has conveniently reduced the workforce in order to reduce the unemployment number. I just saw a report which shows that if you add in all the people the government takes out, because they are discouraged, the unemployment rate jumps to 11-11.5%, but even that is low. If we go by the U-6, which we should, as that is the equivalent of what we used during the 1930’s, the rate is sky high. We just came off of a low quality recovery from the 2000-2003 recession which spurred the current recession and clearly the further we kick the can the worse the problem becomes. Stop kicking the can and let people know how bad it is, stop the government intervention (we are now paying people to short sell their homes!) and let the bad debt get cleaned away by the system.
If we do this the problem may not just get kicked down the road, but it might get fixed. Of course, health care is now taking the spot light so who cares about jobs or what is happening in the real world. While I do not favor political intervention in the economy I want Congress to really pass a jobs bill, i.e. a comprehensive bill that provides employers tax cuts, what can I say, I am optimistic.
This morning’s employment report has been heralded as either a rogue number or a turning point, depending if you’re an economist or the President. From my lens, if you believe that report I would love to talk to you about some great time shares and a couple of bridge lease deals I have in New York and San Francisco. I am sure I will have plenty of people disagree with me or call me a Debbie Downer or whatever, but let’s face the facts here, the data does not support a -11,000 print for November. It does not even come close.
On top of all of that we had massive revisions of 159K going back a couple of months. Never in my life have I seen so many smart economists, ADP, the Monster Worldwide Index or the ISM data miss that big before. I guess Obama should have, I am stealing this from Rosenberg, a jobs summit every month. There was no one, or maybe 1 or 2 people, on the planet who would have guessed a -11,000 print for November as the consensus was for a loss of 130,000. The ISM data showed employment contracting, both the manufacturing and the non-manufacturing, ADP, which was a perfect gauge last month, was off by how much? We had 2 weeks of 500K+ prints of initial claims and 2 other weeks with so-so results, but the claims data clearly showed higher losses than what we saw.
The BLS is not even to blame for this as the birth/death model only added 30K of new jobs to the mix. This begs the question, who is hiring? JnJ was cutting a large portion of their work force, the consumer confidence survey showed that jobs were not plentiful, it is taking 28 weeks to find work and no one is questioning this report. I am sorry, as much as I want things to get better we cannot get there through playing games with the numbers. This may simply be a rogue number, who knows, but the likely hood of the consensus being off by 120K is as likely as my dog starting a conversation with me. I am not the only one that feels this way either.
Here is what David Rosenberg said:
“ The U.S. nonfarm payroll report was a huge surprise and a complete disconnect from just about everything we saw regarding the U.S. labour market in November. This is not to suggest that the pace of decline in employment is failing to subside, but rather the magnitude of the improvement in the so called second derivative. There was absolutely nothing in the i) claims data, ii) ISM manufacturing data, iii) ISM non-manufacturing data, iv) ADP report, and v) Challenger hiring and firing data that would have pointed to the direction of such a small decline in nonfarm payrolls (-11,000 in November).”
I fully admit I may be wrong, but when the data points to a completely opposite conclusion it is unlikely. It is no secret that I am no fan of the current administration, or the last one for that matter, as they take great care in making sure they get their way (see GM, Chrysler, Health care reform, etc.) and make sure they pat themselves on the back with every opportunity they can. Unfortunately, the vast majority of the self praise they have given themselves is unwarranted and the result of either things resolving themselves or dumb luck. My point is, I believe they would do whatever it takes to make themselves look like they fixed everything, especially after wasting $1T+, even when we know that is not the case. Keep in mind the BLS has yet to add 800K to the unemployment rolls because they “over estimate job creation” at the beginning of the year.
However, in my opinion, which is whatever you think it is worth, I see the addition of 227K in household number as significant. I see the wage stagnation as significantly important and negative. The increase in the work week is positive, but is that simply because of the uptick in factory orders and will that come back down? The temporary worker increase, +52K, is not a positive like we saw everyone advertising today, here is why. Companies are unsure if the economy is rebounding so why would the hire a full-time employee? They would not, they would hire a temp so they do not have to cover benefits, they can release them without severance, warning and they are significantly cheaper than a full-time employee.
Could the surge in temporary employment mean more hiring could be on the way? Sure, but given that credit is still contracting and retail sales were horrible YoY, remember last year was Armageddon, do you really see the consumer coming roaring back? I don’t. I spent less on Christmas this year, how about you? Why? People are still worried about their jobs, period. Sure employers may be done firing people on a mass scale, but small business are still going bankrupt at a record pace and there is no top line growth. Look at 3Q09 earnings and you tell me that there was real top line sales growth, I will save you the work, there was not unless the company had international sales and even then it was only because of positive FX results QoQ, not YoY.
In my view the current administration has everything to gain from playing with the employment numbers. They are pushing this huge agenda that is not very popular, banks are receiving record bonuses, they spent $1T+ on a stimulus that was a complete and utter waste of money, promised us everything under the sun and are mortgaging our future to pay for it all. So, yeah, they have nothing to lose since they have failed at everything they have done so far. Yes, I know we were losing 700K jobs a month in January, but that was right after Lehman collapsed and it is a year later so give me a break. Even if this number is real what we do not know is who is hiring?
Clearly these numbers look much better than what I expected, which was somewhere in the 350K job loss range, and the markets are loving these figures as they are less bad. Of course, no one is taking much more than a glance at the deeper data, like where the jobs are coming form or why incomes are up.
If you take a deeper look into the jobs report you will see that the minimum wage increase was a big part of the rise in incomes, which was still rather modest. The work weeks also increased from 33 to 33.1 hours, hardly an encouraging and far from a traditional full-time work week. Now, on to the main employment numbers.
If you look you will see that construction jobs are still down, substantially from 2008, and mildly since the last report. This confirms that construction is still slowing as this could be considered part of the “busy season” which means that it is unwise to assume housing is on the verge of any recovery, in my opinion. Retail and professional job losses are still pretty high which shows that the consumer and business spending is less than desired at this time, retail lost 44,000, versus an average of 27,000, and professional business lost 38,000.
Financial jobs also had significant declines of 13,000 which is surprising given the market’s rebound. The only positive news was that health care increased jobs by 20,000, but is lower than its average gain of 20,000. Hospitals have been cutting back and many were worried that this number would be negative for the month.
Now, for what I would consider the bad news, the actual estimate for 347K job losses was accurate and we technically were there. The government and the auto industry added 100,000 which means that the non-net estimates was right on the mark. The auto industries addition of 28,200 jobs was an 11 year high brought on by government intervention and the emergence from bankruptcy, I would classify them as government jobs. The auto industry usually trims 20-30,000 jobs consistently which means that the auto industry effectively added 40 to 50,000 to the top line number and the government added 12,000 jobs which is equivalent to adding another 20,000 reduction to the top line number.
In typical BEA form the numbers were skewed to show a better picture then what reality tells most Americans. In addition to the wonderfully adjusted top line numbers we see some more data that has me concerned, and it should concern you as well.
The unemployment rate dropped, meaning people benefits ran out and they are no longer unemployed.
I love government statistics, if they are not collecting unemployment they must have a job!
Back to reality, Here is what the report said:
rate was 9.4 percent, little changed for the second consecutive month.
The number of long-term unemployed (those jobless for 27 weeks or more)
rose by 584,000 over the month to 5.0 million. In July, 1 in 3 unemployed
persons were jobless for 27 weeks or more.
In July, the number of unemployed persons was 14.5 million. The unemployment
for reasons such as school attendance or family responsibilities.
About 2.3 million persons were marginally attached to the labor force
in July, 709,000 more than a year earlier. (The data are not seasonally
adjusted.) These individuals, who were not in the labor force, wanted
and were available for work and had looked for a job sometime in the
prior 12 months. They were not counted as unemployed because they had
not searched for work in the 4 weeks preceding the survey.
Among the marginally attached, there were 796,000 discouraged workers
in July, up by 335,000 over the past 12 months. (The data are not
seasonally adjusted.) Discouraged workers are persons not currently
looking for work because they believe no jobs are available for them.
The other 1.5 million persons marginally attached to the labor force
in July had not searched for work in the 4 weeks preceding the survey
Basically, we have seen a major slide in the labor force even as the unemployment rate dropped from 9.5% to 9.4%, which will likely correct itself in the near future. The employment-to-population ratio gives a more accurate picture of the slack in the labor market and the hidden secret in today’s report was that this metric slid to a 25-year low of 59.4% from 59.5% in June and 61.0% at the turn of the year. Of those unemployed, 33.8% of them have been unemployed now for over 27 weeks, a record amount.
Of course, Mr. Obama hopped on the bandwagon and has stated it is the stimulus package that has spurred a better jobs report, which is a figment of his imagination. Truth be told, such a small fraction of the stimulus has been spent we have really no idea if it is effective or not. In fact, his intervention in the auto industry is responsible, albeit inflated, better than expected jobs report. I just love it when politicians take credit for something they really did not do.
If things are really turning, why are insiders selling at a record pace? We had insider selling reach $1 billion versus insider buying totaling some $13 million over the past week. Insider selling has always been a decent gauge for the overall picture of how executives feel about their companies short-term prospects and cumulatively how business leaders view the markets. They are saying, based on this recent data, it is overbought.
So, these are your green shoots and while I am enjoying this rally I believe we have some major problems that need to be addressed. I believe unemployment will worsen and by the fall we will see the true strength of the economy. In fact, the S&P 500 has priced in a 4.5% GDP growth rate which is absurd and points to a major decline in equity prices when that number is not meant, probably to the 840-850 level.
This is a nice rally, but I have reduced my US holding to 15%, total, with 40% international, mostly Asia ex-Japan, and the rest in short-term treasuries, corporate bonds, TIPS and cash. I expect a major decline very soon to correct the averages which are over pricing in perfection that cannot be achieved in the short-term.
Sorry for the delay in posting, took the morning off to renew my license, getting old is a pain.
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