This is another of our new features: Blogger’s Take. It is inspired by — a nice word for stolen — the WSJ’s Economist’s Take, which they post after major economic data releases.
We wanted to do something a bit more informal: Looking at different subjects a bit more in depth, and take in some perspectives from a broad variety of bloggers (as opposed to a narrow slice of Wall Street Dismal Scientists.
Here are our first half dozen responses to the question: "What Up With Employment?"
"A striking characteristic of the US non-farms job data since the trough of 2002 is that recovery growth is the weakest since records began in 1939 (uncertain BLS September revision notwithstanding). Even the brief and frail recovery between the 1980 and 1981 recessions was stronger. It may be that growth has not yet peaked – but that would make this jobs recovery the slowest to pan out on record.
Moreover, the latest non-farm payrolls data paints a picture of deterioration, particularly in construction and related industries. Whilst both the unemployment rate and hourly earnings data stuck out as good news, the fact is they are lagging indicators. The Fed has ammo to hold on this data; but should coming months show job losses (not outlandish) they might still choose to wait on clearer inflation (and BLS) data before contemplating the wisdom of cuts."
– Rawdon, Capital Chronicle
has (thankfully) covered in detail the ins and outs of the most
recent BLS employment release.
A thorough (and correct) interpretation of this data can give us a
better clue on the state of the economy and future Fed policy. On the
other hand, we might ask the question: are we framing this entire
employment discussion incorrectly?
The most interesting aspect of the employment debate is why is
employment growth so low relative to prior expansions. It is now well
established that macroeconomic (and capital market) volatility has declined
for some two decades. Might it simply be the case that the prior
expansions occurred in an economy that is far different structurally
than the present economy? In that light, recent “punk” employment
trends may simply be the new normal. Time will tell, but given the
difficulty in interpreting recent government data releases it might
behoove investors to look elsewhere, e.g. market derived data, for a
clearer picture on the current state of the economy.
The enormous size of the March 2006 preliminary benchmark revision
calls into question the credibility of the Bureau of Labor Statistics
in general, and the nonfarm payrolls report in particular. The increase
in nonfarm payrolls for the 12 months ending in March of 2006 totaled
2.08 million, the birth/death model adjustments contributing over
Now the BLS says there are an additional 810,000 jobs to be added,
meaning that well over 50 percent of new jobs during this one-year span
were not reported during the original survey period. This compares to
less than 10 percent for the March 2005 benchmark revision. Something
is seriously wrong somewhere at the BLS.
-Tim Iacano, The Mess That Greenspan Made
The markets have interpreted the jobs numbers as signs of
economic strength. They were less taken with the modest increase in jobs
reported and more impressed by the 50% upward revision of the prior data. With
the indication of strength, expectations of Fed easing were reduced, rates
backed up, and this helped support the dollar. Stocks, however, have not found
additional buyers in the face of rising rates and a firmer dollar.
Interestingly, the average one-minute volume in those S&P 500 futures has
been about a third lower (2532 vs 1765) after the release compared with after.
The average NYSE TICK reading before the release (showing how many stocks at
each moment are upticking vs. downticking) dropped from 343 to 264.
Yes, the presence of a holiday might account for some of
this, but somehow I think traders could have mustered more enthusiasm had they loved the jobs data. When a patient’s
stream of conversation changes after an event, the analyst concludes that the
event has special meaning and impact. This creates a window into the mind of
the individual. This market shrink looks at the jobs data release and finds a
similar window into the mind of the market.
-Brett Steenbarger, Traderfeed
By now you know about the peculiar NFP report from last week.
The headline number was strangely low, the revisions and adjustments create what
for now appears to be a bizarre miscount for many reports, too many really. Some
conclusions are starting to be drawn but it would not be a shock to see the
“explanation” change a couple of times before the market starts to settle on an
The consequence that concerns me as I try to manage client accounts
is that this has already caused some dislocations in the market and a
re-pricing of certain assets like currencies, bonds and perhaps even
gold. It is a reasonable bet that the market has not figured out and
resolved this issue yet. While it may not show up in the VIX or other
measures of volatility your portfolio could be in for an artificially
bumpy ride for the next few weeks. This is could snowball into a nasty
whipsaw for certain assets. If you tend to be longer term as opposed to
more of a trader you may want to avoid the temptation to make changes
in the face of moves based on uncertain and flawed data.
-Roger Nusbaum, Random Roger
Something is seriously wrong if 810,000 jobs have to be added on behalf of past
In fact, what was supposed to be excellent news, might really be a
nightmare. Consider the implications if it really did take 810,000 additional
jobs to produce anemic real GDP growth of
2.6% during the second quarter. Subtracting CPI distortions, hedonics,
imputations etc, the reported 2.6% growth is likely at or under the stall rate.
This brings to mind some important questions.
If the BLS was
underestimating jobs created for March 2005 thru March 2006 by 810,000 then how
much are they overestimating jobs by now since housing has clearly turned?
those job revisions are accurate what does it do to productivity numbers?
the Fed is basing some of its interest rates decisions on jobs, just how far
behind the curve were they in tightening and how far ahead of the curve are they
Darn it! The hand-wringing choir has begun, and I’m already behind.
Oh, you know the tune: Corporate America is raking in the moolah while
Johnny Cubedweller is getting the shaft. I’m sure you’ve heard this
before. Paul Krugman even said that we shouldn’t be happy that the Dow
has hit a new high.
Sorry professor, but I am happy.
the problem this time? It turns out the Labor Department said that the
economy created only 51,000 new jobs last month. Now before you join in
on the singing, bear in mind that this number will be revised next
month. And again in the month after that. And if that’s not enough,
sometime in 2017, the later revision of the earlier revision will be
revised all over again. It might even lead someone, maybe a taxpayer,
to wonder why we have a Labor Department in the first place.
I mention that the Labor Department somehow missed 810,000 new jobs
created last year? Perhaps they were counting the Household survey. Or
was that the Establishment survey? It gets a little confusing here. You
see, not only do our labor surveys get revised umpteen times, but there
are a few you can choose from.
This is why I don’t pay any of
them too much attention. I’m going to take a wild guess and say that
September’s number is going to be revised higher. In fact, all of the
revisions will tell us the perfectly obvious: The economy is much
stronger than the hand-wringers think.
So when those 810,000
workers are finally retired and living on Jupiter, the Labor Department
will get around to its last revision of its last survey, and it will
tell us exactly what the Dow said all those years ago.
-Eddy Elfenbein, Crossing Wall Street
An excellent first effort from our crew of bloggers!