Yes, its that time again: Another non-farm payroll has rolled around.

Consensus is for 205,000 new jobs. As I did last month, I am taking "the Over." The strength of the financial sector, retail, food services and construction are the basis for the call. I continue to note the general quality of jobs, which have been lower paying and offer less  benefits than the jobs they replace. Construction jobs, which were very strong Q1, do offer above average pay. We have also seen a substantial rise in hiring in the financial sector (with strong salaries and benefits). 

Two interesting data points on NFP:

According to today’s NYT, the financial sector accounted for more than one-third of the wages paid in the New York City, yet it provides just one of every seven jobs. That’s an amazing stat. The Times also notes a "surge in hiring on Wall Street is driving the economy of New York City and the surrounding region, but the pace of growth still lags behind the national rate…"

The second tidbit comes our way from Slate’s Moneybox columnist, Dan Gross, who notes that "Payroll company ADP and Marcoeconomic Advisers, the well-respected economic consulting firm, have got together to crunch data from adp’s payroll business and estimate the BLS job creation number. They’re saying 178K for April."  You can read all about this new venture in their press release.

The WSJ’s Justin Lahart looks askance at this new report about the report. While we may enjoy that each month’s NFP report "give investors new opportunities to roll their eyes about monthly economic forecasting," (I plead guilty!) Lahart writes in Job-Watcher Watchers

"One has to wonder about the value of reports that predict what reports might say. Instead of forecasting hard-to-predict wiggles in a monthly jobs report, it would be nice to know what is actually happening more broadly in the economy. Maybe their bosses should cut the economists a break from the guessing game."

He’s referring to the folly of forecasting — and unless you can reliably forecast the numbers, it behooves us to remember that the guessing game (guilty again) is just that — a game, an excercise — and it needs to be taken with a grain of salt.

Understanding what is actually going on in total is much more important to investors than guessing what a model generated report, subject to revisions and recalculations, might say . . .

That said, I’m sticking with the Over.

UPDATE:  May 5, 2006 9:33am

So much for the over: Wow — 138,000 — thats some miss.

The underlying data is mixed:  Average hourly earnings rose at a 3.8% annual rise, the fastest annual gain since August 2001. Unemployment rate was unch. The workweek rose to 33.9 hours (from 33.8 in March), while overtime fell to 4.5 hours (from 4.6
hours in March).

Bloomberg suggested that "the slowdown in hiring suggests record gasoline prices and rising borrowing
costs are forcing companies to rein in costs to maintain profits."

Wall Street Hiring Propels Increase in Jobs in the New York Region
NYT, May 5, 2006

Job-Watcher Watchers
May 5, 2006; Page C1

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What's been said:

Discussions found on the web:
  1. Barry Ritholtz commented on May 5

    One third of all wages paid in NYC are financial related jobs.

    I find that astounding . . .

    I wonder how much are from Goldman Sachs.
    There’s a stat for you: What percentager of total NYC wages and income does GS represent ?

  2. spencer commented on May 5

    Making bets on economic news releases is a suckers game invented by the brokerage houses to generate volume.

  3. B commented on May 5

    Spencer, you are oh so right. This is a gambler’s game if you are trading it. Where’s the election year manipulations? Given the Republicans have the ability to massage this number given the calculation, how bad is it really?

    I wouldn’t bet my life on it, but I think there is a much more reasonable chance than anyone would entertain that global GDP could fall off of a cliff this year. Anecdotally, if 40% of all jobs since 2000 are real estate oriented and the home builders are discounting the future, what does that mean about future employment for those jobs created? Btw, that disproportionate number of real estate jobs is not just a US statement. The IMF warned China yesterday about its building binge. Building is the global engine of growth in an asset binge.

  4. D. commented on May 5

    What’s so surprising? We’re in an asset bubble (i.e financial bubble) where all the roads lead to Wall Street.

  5. Lyon commented on May 5

    Looks like the under was the bet today…..

  6. Lyon commented on May 5

    Looks like the under was the bet.
    I think with housing hitting the wall, we will see more of this.

  7. D. commented on May 5

    It’s looking like job growth will pick up everywhere but in the US.

    Government indebtedness is a relative game. If the US keeps on ballooning its debt, it gives all the other governments the opportunity to spend!

    In Canada, the oil patch can’t find enough workers and is sucking up every body it can find. Coffee shop workers are being offered up to 20% more than minimum wage. Ironically, since wages have grown, more women have been leaving the work force, intensifying the search for more workers!

    Canadian National just announced a 1.5B increase in capex. Hydro Quebec, a 25B expansion project. We elected a Republican Prime Minister who just announced tax cuts.

    It’s spring in Canada, can you smell the sweet smell of inflation?

  8. thecynic commented on May 5

    since bonds have been as oversold as stocks overbought a relief rally is not unexpected. what is odd, is that the curve is flatter not steeper. if the bond market thought the Fed was done, like obviously stocks do, the curve would steepen as traders piled into the front end. that doesn’t appear to be happening and the hotter wage number could be the reason. i would like for once to see stocks rally on a day when gold wasn’t up.

  9. William commented on May 5


    Long time reader, 1st time poster.

    Are you guys still bearish on US stocks? It really looks like the Dow will reach 11,500 in the coming days/weeks.

    I read the Paul Desmond interview on real money but don’t understand how to apply that to timing – does that mean a correction is imminent (weeks), coming soon (months?) eventually (years)?


  10. neal commented on May 5

    In a theoretical world of perfect data manipulation, data would be manipulated so that the most widely watched financial indicators (Dow, S&P, Nasdaq) would always go up. The action of less widely watched indicators would be less important until the wheels really fell off. Remember, all that counts is preservation of power in November elections.

  11. TP commented on May 5

    I think the Bloomberg suggestion is right on. We are just starting to see the pressure oil will put on the markets. I don’t think it will be a lot of stress, but a steady amount of pressure.

  12. Morgan commented on May 5

    I think there is a message in the revisions to the NFP numbers. We recently came through a streak in which 10 of 11 revisions were upward (February through December, 2005, I think). Suddenly we’re seeing downward revisions every month.

    I’m no expert on the calculation of the preliminary NFP, but it seems to me that whatever assumptions underlie extrapolation from preliminary data to the preliminary estimate, they’ve recently gone from being overly bearish to overly bullish. I doubt the assumptions themselves have changed much, so I can only assume that the labor market the models describe has taken a sharp downward turn.

  13. clunk commented on May 5

    SPX 1650?? Pass me that pipe.

  14. Bynocerus commented on May 5


    Don’t you mean 1350 on the SPX?

    For everyone,

    I can only remember 5 times in the last thirty five years when the Naz and S&P got out of sync – 84, 87, 90, 00 and now. Given that the NDX is up about half what the DJIA is up year to date, and given how those other four years wound up, can anyone think of a time that tech underperformed and the S&P rallied strongly?

  15. thecynic commented on May 5

    would also point out that the Euro (+8%) has outperformed the S&P 500 (+5.8%). today utilities are best performing sector in S&P and they are defensive. one of worst performer is tech with materials. interesting that the commodities are not rallying today on this supposedly dovish data and bonds are not discounting an end to tightening, but the Dow continues to new highs.. something does not compute.
    maybe Warren Buffett is going to buy all Dow 30 stocks.

  16. B commented on May 5

    Other than tech, you just can’t deny the health of this market. There is a tech stock buying strike in the last few weeks. Well, really the last three years. Volume is simply drying up recently. So far it is a case of no buyers as opposed to alot of sellers. Some unusual dynamics. Frankly, everything seems relatively healthy except for tech and healthcare and biotech, etc.. ie, The new economy stocks aren’t exactly interesting. It’s inflationary stocks. Maybe there is no new economy. If semis can’t get a leg under them, they are pointing to a weak equity market as they tend to be great forward indicators.

    Fund managers might be loading up on stocks that are more defensive in nature and are moving out of higher risk stocks. To be fair, the Dow 30 stocks are bloody cheap right now comparatively. If I had to buy anything, I’d be buying Dow stocks. And there is little deterioration in any of them. They are all pushing near 52 week highs. Even the pigs like IBM, GM and MSFT aren’t that far off of 52 week highs. ie, They may not be going up but they aren’t going down either. But, then again, their action is typical of late cycle rallies.

    What amazes me is the Transports. I mean it was a few months ago they were at 3500 and now they are at 5000. I like nice orderly rising markets but this doesn’t smell right. It wreaks of rampant greed and a disconnect with fundamentals. The Transports are within 200ish points of hitting a trendline back to 1929. The prior tops were bubble tops. Doesn’t mean they won’t go to 10,000 but it’s a little unnerving.

  17. Bynocerus commented on May 5

    As far as the Dow goes, I can’t help but agree with you B. Eleven of the Dow components are at new highs. Back in 2000, at the beginning of the end, I think the number might have been more like 3.

    On the flip, and to Barry’s thesis, 7 of the 11 Dow components presently making new highs were making new highs at the beginning of 2000. And although Dow stocks are cheaper than others, the unweighted P/E, excluding GM (which has no earnings), is 18.75. The dividend yield is 2.44%. And we’re at peak earnings.

    Now suppose we get 7% earnings growth, on average, for the next five years. A Dow that trades @ 10 times earnings is @ 8600 in 2011. Or, @ the historic P/E average of 15, 13000.

    I think you’ll be a lot safer in Dow 30 stocks in the next five years than tech, but those are pretty paltry returns considering you could get the equivalent of Dow 14,500 over the next five years in risk-free treasuries.

  18. B commented on May 5

    Very good points. I’ll tell you, I have a very uneasy feeling. I don’t mind markets making new highs but something just doesn’t seem right. If we had some broader participation in something other than “stuff”, I’d be pretty excited about this market. They are driving the same theme and driving it off of a cliff. We need a rotation to a new theme for this to be sustainable. This theme just isn’t sustainable. This whole boom is predicated on a global build out of basic industries to feed the American consumer. No one has attempted to stimulate their own consumers and that means a global basic industry glut with every Tom, Dick and Harry expecting to cash in on serving America. I just don’t see a happy ending without structural reforms. Those simply aren’t going to happen because governments are seeing their economies boom without addressing that fundamental issue of stimulating domestic demand.

    I pray to God, Allah, Lucifer, Gentle Ben, Bodhisattva or whomever it doesn’t come to pass.

  19. Lord commented on May 5

    That means finance jobs pay 7/3 or over twice what other jobs pay. Not too surprising considering Wall Street.

  20. B commented on May 5

    JC! The market today is F*CKING INSANE! Can anyone tell me how a f*cking pig of a bank like JPM can trade at a dividend yield of less than 3%? As of today, it does. Long rates goes up, banks trade higher because the spread is back. Long rates go down, so the banks go up because the Fed might be finished. Even using a DCF analysis, it’s even more stupid. And Goldman trading at 3x book? Are you kidding. Has that ever happened? Can anyone that might have more historical information than me confirm this? That’s like 800 standard deviations from the norm. The valuations of financial institutions is f*cking stupid. I am having a COW!

  21. B commented on May 5

    I’m having a nervous breakdown here. Some dumb f*ckign Wharton professor is on Tv telling me home prices in California, DC and Florida are driven by strong fundamentals and still very affordable.

    Are there any d*pshits from Wharton on this board? You need to get a refund for your education(less).

  22. clunk commented on May 5

    I love it when B forgets to take his medication.

  23. D. commented on May 5


    In 2000, brokers were trading at 6X book! They are still so cheap.

  24. B commented on May 5

    I should have clarified. I mean Goldman. I was looking at a major multinational that is less prone to stupidity. Not Ameritrade and the home of the clueless. Yes, they were at levels of incredible stupidity. Got anything specific on Goldman or Lehman?

  25. Dru Nelson commented on May 5


    The also significantly revised down for the past 2 months. Didn’t you call over for last month as well?

  26. D. commented on May 5


    Long financials until they represent 95-100% of market earnings. It used to be banks were the oil that greased the economic wheel, now they ARE the wheel!

    Within the next decade, the world will realize that we are the best bankers and all North Americans will work for financial companies. And the rest of the world will produce everything else.

    It’s taken a while but finally everyone understands that the road to riches is an MBA or a CFA.

  27. B commented on May 5

    You should know better than that. The trend will change. It always does. We now have people heading investments at firms that don’t have a clue. Each time we have entered this scenario, we have had a manufacturing resurgence of sorts. Not necessarily by the greedy American bastards but by Germans, French, Italians, Koreans, Japanese and British moving manufacturing here. That said, it appears we should be long till the financials represent 95% of market earnings.

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