I wanted to address a few emailers on yesterday’s column, and today’s CNBC appearance.
Yes, I am out on a limb with this jobs report – but as I said on the air – that was an off the cuff remark – I don’t track jobs or do the leg work to accurately forecast them. Instead, I track the market and its reactions to economic data.
But the bigger issue is why have the forecasters been so wrong? Something odd is going on, and no one has figured it out yet.
Still, I find the ongoing forecasting error to be fascinating. As I mentioned, tomorrow is the dismal crowd’s best chance to win “the over,” with a 225 consensus and a 300k “whisper number.” (Who’s the CFO that’s whispering? The Fed Chair? Damned if I know).
Even though I took the under, this is one bet I HOPE I am wrong about . . .
Do not get to far out on a limb on what one report does– the ISM nonmanufacturing employment number jumped from 52.2 to 59.6. Do no have much history on this, but the manufacturing job report is a better indicator of the jobs number then unemployment claims.
http://www.j-bradford-delong.net/movable_type/2005-3_archives/000472.html
The FT reports:
FT.com / World / US – Dollar rises on strong productivity report: US productivity grew much faster than first estimated at the end of last year, easing worries that inflation may accelerate but also reducing the pressure on firms to step up hiring. The initial estimate for fourth quarter productivity growth showed a rise of only 0.8 per cent annualised the slowest increase in nearly four years. On Thursday this was revised up to 2.1 per cent. Unit labour costs, meanwhile, rose by only 1.3 per cent in the last three months of the year rather than the 2.3 per cent initially reported. As a result, unit labour costs were up only 0.4 per cent during the year. Despite an upward revision to the unit labour costs for the third quarter, this suggests that employment conditions are still too weak to start pushing up prices…. Between 1973 and 1995 annual productivity growth averaged 1.4 per cent. It accelerated to 2.5 per cent between 1995 and 2001. Since then it has averaged 4.3 per cent a year. The latest burst of speed has been widely attributed to the delayed effects of the high-tech investment of the late 1990s which took companies some time to integrate into their business processes…
Don’t be too quick to discount “globalization and outsourcing”. At least in the hi tech sector where I work, the employment effects are huge, negative, and show no signs of abating. And the jobs being lost are ones that paid enough to finance significant savings (contributing to the dismal US savings rate?) and contribute significant aggregate demand (cause of low demand for other workers?).
You may complain about shell-shocked executives, but right now they are plenty brave enough to outsource.
Thursday March 3rd, 2005 11 PM CST
Based on recent sleuthing of the evidence, my bet for tomorrow is that the Employment Report will be market friendly for stocks and bonds.
Here is why:
Composite Junk Bond Fund Sentiment Index back to Bullish. 6 Funds closed Higher, 1 closed Lower, and the rest were unchanged. Junk Funds have been down the last few days.
Rydex Long/Short Bond Juno Fund Total Assets reveal tomorrow’s employment report will be market friendly. Money is again heavily stacked in front of Friday’s Employment Report short bond funds and no sponsorship on the long side. This means job growth in the neighborhood of street expectations of 225,000. A jobs growth number under 200,000 will send bond yields south of 4.3% and the stock market soaring Friday and into Monday. Anything close to 225,000 new jobs is BULLISH for stocks and bonds!
All bets are off if the jobs number comes in north of 270,000 will send bond yields blasting thru 4.5% from today’s close of 4.38%. This would also send stocks into a tailspin Friday and into Monday.
Rydex Equity Sentiment is screaming rally!
Rydex Ratio unchanged at 1.6.
Money Market back above 1.5 Billion to 1.515 TA. A Big plus.
The final evidence for a rally Friday – Monday is in the reduction in Rydex Banking Total Assets from 12.4 to 7.9 Million in total assets. No sponsorship in another interest rate sensitive index is another contrary sentiment indicator that calls for stock and bond market rally.
The market has not tipped its hand how it would set-up this cycle turn until tonights Rydex numbers confirmed with junk bonds, money market and bank fund TA’s.
Set-up appears to be Up Friday, Up Monday with cycle turn Monday from intraday highs or Tuesday. Then grind back down into cycle turn March 11, +/- 1 trading day. This means a potential low on Thursday March 10th to as a late as Monday March 14th. We then scream higher into end of month.
Crude oil short term reversal back down from lofty heights will also provide a positive catalyst for a Friday – Monday rally.
Best Regards,
JT Ploch
Market Strategist
StockMarketBulls.com
StockMarketBears.com