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.
UPDATE: June 2, 2006: 12: 47pm
Cody and I finish the debate below
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
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
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…
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.
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!)