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?
Well, last week was the breaking point in the equity markets and there is no denying that. The GDP figures were cooked to say the least and shows that the economy, unfortunately, cannot survive on its own without massive government intervention. It also proves, to me at least, that there will be, I place a 70% probability on it, that there will be another stimulus plan by the end of 1Q10. In the upcoming week we have massive data coming out, but there are a few data points I am waiting for, the ISM report on Monday and the employment reports, ADP on Wednesday, the initial claims on Thursday and the employment report Friday. However, there are tons of other data points also being released that you should pay attention to and look beyond the headline numbers on.
On the absurd side of the reports last week was the Whitehouse’s attempt to tell us that is wasteful $787B stimulus package was working and “saved or created” 650K or 1M jobs. First, there is no way to quantify a saved job and any economist worth their salt will verify that as a factual statement. Second, they said the $283B or so tax benefit, the most painful joke of the stimulus bill, helped create more jobs because it lessened the tax burden of working Americans. How an additional $20, and I am being generous with the $20 figure, a week tax savings is saving or creating jobs is beyond me, but hey the government has its own mathematical formulas to suit its own purposes. What is so painful about that portion of the stimulus is that you need to have a job to reap the benefits of that tax savings or wait until you file, unless I do not understand the language of the bill and I am not a CPA.
I can see how bailing out GM and Chrysler would have quantifiable results in the “saving” jobs category, but outside of that there is simply no way to tell. Then we have reports coming in from the Associated Press, not FOX News mind you, that the creation of jobs figures is double counted or just false figures. Considering the last report released just a couple of weeks ago showed such different results I find it way to convenient that this report shows such stellar results, not that our government would ever be aggressive with their math figures. The other reality is that if 1M jobs were saved or created how in the world can we be shedding 530K jobs a week still?
That means we are in far worse shape than we are being told, which sounds about right to me. Not only that, but look at all the consumer sentiment numbers coming in that all show jobs are tough to find and getting harder to find. The picture is not improving and considering a 3.5% GDP print and all the rosy talk from Biden, Obama and their economists this thing, whatever we are calling it now, is over. However, if it is over and things are better, why are the people saying I can’t get work? Because it is not over and, in fact, it is getting worse at least on the jobs side of the picture which does not bode well for the economy itself.
There is so much uncertainty out there that personal spending decreased, according to the report of Friday, and disposable income is way down, according to the GDP report. Those are two key pieces of data that were completely ignored by the media, except for the spending report of Friday. All you heard about in the GDP report was how great it was and that if you subtract government stimulus we still had growth. Well, wait a minute, if you look at the consumer side of the equation and how incomes and disposable incomes are down that is very forward looking and not good. In fact, GDP is review mirror looking, but the consumer income portion is forward looking, that is why CNBC and the rest of the media ignored it. It is because there is trouble ahead, big trouble.
Corporate earnings were a factor of international growth, which may continue, but it was also a factor of a weaker currency as well. Now we are seeing a stronger dollar, so what does that mean for Intel’s earnings next quarter? I am willing to bet they will meet their EPS, but miss on their revenue if the dollar steams ahead in value, which it will if I get my continued correction I see coming. I am not picking on Intel, I love their product, but I am using them as an example as they grew their international business and their US sales dropped last quarter and they had favorable FX results, like many other firms. This could be a problem moving forward in the tech area, especially if our products get more expensive overseas.
Looking ahead to next week, Thursday’s employment report is going to be interesting, to say the least. We have had another month of straight 500K a week initial claims, but estimates say that last month only 190K will actually be unemployed, which is a joke of course and Breifing.com estimates 235k for this figure. What is important to look at is the revised figure for last month, the U-6 number and what games the BLS has played with the birth/death model, which is a guesstimate that a certain percentage of terminated workers will start their own businesses. That birth/death model has been busy this year and last year adding hundreds of thousands of phantom jobs to the report, so many in fact that the BLS quietly will add an additional 825K to all of the 2009 unemployment numbers in February of 2010, nice right? Be sure to come back here to see what they add in after the number is given and I will be more than happy to share how many phantom jobs are added to this month’s report.
My point is that with 500K+ a week filing for initial claims, that’s 2M a people a month, and over 50% of consumers saying that finding a job is very hard and the average time to find a job is 6 months how can we only have 200K a month actually be unemployed? It is not possible and unrealistic. If this was the case we would have no need for extended unemployment benefits or emergency claims along with, there is a pending bill now in the Senate, another measure to extend benefits to about 2 years for unemployment benefits. There is no conspiracy or anything of that nature happening, they are doing it right in front of you, but they just burry the numbers in the reports which is why you need to look at the U-6 report on Thursday because that will show you what the real unemployment number is. It is definitely not 9.8 or 10%, it is a lot higher.
So, if you want to believe that 1M jobs were saved or created, believe it, hey my kids believe Santa and the tooth fairy still so there is nothing wrong with a little belief in magically creation. However, we all have to grow up and unfortunately we all learn that there is no Santa or fairy that leaves money under our pillow, we would all be toothless, and reality sets in. I know that we all have hope that President Obama will live up to his Hope and Change campaign promises, but it has been a year and guess what? There has been no change and my hope for change was killed the day he brought Larry Summers back into the Whitehouse. I saw this movie before and it did not end well the first time and I am sure the sequel will end even worse.
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