NFP Day!

Boy, I picked a hell of a couple of days to be unplugged. I leave my desk, and the market screams higher. Well, I’m back in the saddle, and just in time for everyone’s favorite BLS report, Non Farm Payrolls.

As usual, I will be taking "the Under."

Bloomberg consensus is for about ~123,000 new jobs. The range of predictions for the increase in payrolls runs from 50,000 to 200,000 new jobs. The average payroll gain this year, according to Bloomberg, has been 141,000/month. That’s down from just over 200k/mo last year.

There are several factors that imply a weak jobs number. The only question about consensus is how much of these  are worked into the various guesstimates.

The ADP preview shows ‘sluggish’ gains of 78,000 jobs; (I have yet to be convinced that the ADP report is either consistent or precise, so take this data point with a grain of salt).   

• It is now taking more time for displaced workers to land jobs; 4.2 months in the third quarter of 2006, up from 3.6 months the prior quarter;

• There has been a surge of layoffs in September — up 54% vs. August;

None of these suggest robust hiring in September.

The biggest job related "conundrum" has been the lack of hiring in Retail. Given the decrease in gasoline prices, and the corresponding uptick in consumer spending (see: Falling Gas Prices Help Low End Consumer), one might think retail would be adding bodies.

In addition to weak surprisingly weak retail job numbers, the WSJ points to weak temp hiring, as well as weak retail hiring, as a current employment trend that is less than encouraging.  In the past, these two groups have been significant early indicators:

Year_over_year_employment"Temporary help is a leading indicator of broader
job trends. Temp jobs started contracting before the economy sank in
2001 and kicked in before employment started growing again."

Lou Crandall, economist at Wrightson ICAP, a bond-research firm, calls them a gauge of corporate energy levels. "When they’ve got a lot of new projects that ultimately lead to expanded economic activity, [companies] suck up temps," he says. Troublingly, year-over-year growth in temp employment has slowed from more than 6% last year to 2.5% in August, a possible sign of brewing corporate retrenchment.

Retail employment might send similar signals. The last two times it dropped — in the early 1990s and the early 2000s — it was accompanied by a recession. In August, it was down 0.7% from a year earlier."

With Retail sales and profits still strong, it remains puzzling as to why this sector is not expanding more rapidly. Some in the industry are blaming the "lack of qualified workers" for the weak retail housing, but I don’t but it. Entry level retail sales is a low skill job; Even handling the register requires only the most basic of skills.

I am sticking with the under . . . 


Stop Signs
October 6, 2006; Page C1

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What's been said:

Discussions found on the web:
  1. Reed Hypothecation commented on Oct 6

    If it comes in higher, do you think that ppl will concede a strong finish for the remainder of the year ?

  2. jkw commented on Oct 6

    How likely is it that they will manipulate the number for political purposes? Recent news has been bad for the Republicans, so some good economic news right now would be useful. They can always revise it next month so that it shows the correct value. I’m not sure that I trust any numbers coming from the government between now and the election. It will be nice when the elections are done and we can stop speculating on political motivations in the economic news.

    Then again, people will probably pay more attention to the DOW then the government statistics. I’m not sure if the market is more likely to go up with a weak report (in anticipation of rate cuts) or with a strong report (because it would suggest the economy isn’t actually falling apart). So manipulating the data may be useless. Too bad we don’t know the date for when the market will start acting rationally.

  3. Uncle Jack commented on Oct 6

    Down elevator, 51,000. Goldilocks better grab her spoon and run from the midwest and the northeast because it’s getting ugly. Will bad news finally mean bad news?

  4. Bob_in_ma commented on Oct 6

    What’s interesting is even with that low a number, construction was still a net gain. By the time construction turns negative, I think the total nonfarm number may as well.

    Retail and temps were both down again. Healthcare is by far the best gainer.

    Well, we definitely lead the world in healthcare spending and employment! Too bad we trail in the general health of th epopulation…

  5. Bob_in_ma commented on Oct 6

    Any chance we can lay off the idiotic conspiracy theories? I can’t believe Barry threw fuel on this fire with the silly oil post. Talk about misplaced skepticism…

    I bet within a few years years, half the people who were duped into voting for Bush in 2004 will be duped into believing HE was behind 9-11.

  6. Michael C. commented on Oct 6

    The bond market is at its highest inversion since 2000. I guess no one cares outside of this blog!

    OTH, ironically, like Barry has been saying all along, job & income growth has always sucked during this recovery. So who knows if this shitty report means anything?!…

  7. tjofpa commented on Oct 6

    I don’t think so Uncle Jack. THe $ appears to be surging again on this news, maybe breaking out of its recent trading range. We’ll see how long the down elevator lasts.

  8. KP commented on Oct 6

    “Joke of the Day”

    Direct quote from the Fed’s FAQ portion of their website:

    What are the Federal Reserve’s responsibilities?

    Today, the Federal Reserve’s responsibilities duties fall into four general areas:

    * conducting the nation’s monetary policy by influencing money and credit conditions in the economy in pursuit of full employment and stable prices

    * supervising and regulating banking institutions to ensure the safety and soundness of the nation’s banking and financial system and to protect the credit rights of consumers

    * maintaining the stability of the financial system and containing systemic risk that may arise in financial markets

    * providing certain financial services to the U.S. government, to the public, to financial institutions, and to foreign official institutions, including playing a major role in operating the nation’s payments systems

    The bit about stable prices and the maintaining of the stability of the financial markets were especially entertaining….not to mention the bit about ensuring the safety of the banking system. This is the only duty that seems to getting attention lately. I’d say trading inflation for healthy bank balance sheets represents the interests of the banking system quite well.

  9. bob commented on Oct 6

    NFP not too bad taking 3-month average, but the bad thing is that the last month is the worst of the 3.

    This week the “KARA Homes” – reasonably big home builder is filing for chapter 11. They alone will drag construction payroll for October down by 1,000-3,000 jobs.

  10. ac commented on Oct 6

    The report almost doesn’t make sense. It seems to be a mix of really good and really bad.

    Offhand I can only come up with two scenarios that make some sort of sense:

    1) Reporting error
    2) A bubble economy that’s rapidly rolling over from the top

  11. lurker commented on Oct 6

    ac- I vote for number 2.

  12. Chad K commented on Oct 6

    What happened to the ages old belief that unemployment less than 5% was virtually unsustainable? I figured the only people pushing for 3% unemployment would be those also dreaming of down 30k several years back.

    Someone should know this: If you take into account the birth/death adjustments, how many new jobs per month are required to maintain the current unemployment rate?

    Would anyone here say that 4.6% unemployment is too high? I know September sucked, but I’m wondering if it’s the age old semi-truth about 5% [or whatever it was].

  13. jkw commented on Oct 6

    This is some really screwed up analysis:

    “Stocks fall on rate worries after jobs data

    NEW YORK (Reuters) – U.S. stocks opened lower on Friday after weaker-than-expected September employment data prompted worries about an economic slowdown, but upward revisions to August and earlier months dashed hopes that the Federal Reserve may soon cut interest rates.”

    That first line is the headline. Apparently the market is going down because people are worried that the upward revisions to earlier months mean the Fed won’t cut rates. But the cureent number means the economy is actually slowing down. Never mind that if you add the August revisions to September, you get the concensus total (unless there was an expectation of a large upward revision). Apparently instead of a Goldilocks economy, this report means that the economy is getting weaker, but is still strong enough to prevent rates from being lowered. I don’t know what the difference is.

    Did someone actually get paid to write this?

    If the market closes up, will they release the same story with a few key words changed? Something like:

    “Stocks rise after jobs data

    NEW YORK (Reuters) – U.S. stocks closed higher on Friday after weaker-than-expected September employment data prompted hopes that the Federal Reserve may soon cut interest rates and upward revisions to August and earlier months dashed worries about an economic slowdown.”

    I have no idea whether the market will be up or down for the day. Analysis like this certainly doesn’t help.

  14. Tim commented on Oct 6

    A couple of notes on the labor report.

    Residential construction jobs are tanking while nonresidential constuction jobs are soaring, hence the benign looking overall construction figure.

    The number of new real estate agents who are making little to no money these days probably accounts for a good portion of the discrepancy between the NFP and the unemployment rate.

  15. Mark commented on Oct 6

    Barry posted this early this AM in the Goldilocks thread. I don’t know if anyone else had comments on it. It was in response to some of the recent carping.

    “To clarify my position, I did make a Bullish call on June 13, and then again early August.

    In September, I said use the rallies to raise cash.

    I am not yet short — but am looking to move that way over the next few weeks.

    I put usnow at Mid February 2000 . . .

    Posted by: Barry Ritholtz | Oct 6, 2006 6:29:01 AM”

    I found his comment interesting because mid February 2000 to my recollection was right before a huge blow-off rally in the SP500….

  16. Mike commented on Oct 6

    Does anyone know (or know where to find) the make up of last months revision? If I had to guess, it was temporary hiring by retail for the back to school season. I looked on the BLS site and at this months report, but this information eluded me.

    Related to that, the retail comparisons yesterday looked good versus estimates, but weren’t they comparing to last September post 2 major hurricanes?

    I know the market is going up, but I can’t convince myself that the bulls are right (maybe I’m too logical).

  17. TP commented on Oct 6

    Chad – It has been, historically, assumed that a unemployment rates below 5% was not sustainable. Although, this is a contested issue. Phillips Curve (good article in this past week’s Economist) suggest that every percentage point fall in unemployment led to a 1/2 point rise in inflation. The Fed, under the last chairman, followed a modified variation on this theory, and was at several points challenged on it if memory serves me correctly.

  18. bob commented on Oct 6

    That’s what minyans posted on jobs:

    I think it’s a mix of statistical erros that make august+sept to be ok together and some real decline from good august to bad september.

    I think we should move some jobs from aug to sept. How many? Heck knows…

  19. yy commented on Oct 6

    Reuters: “The U.S. jobs picture may have been better than first estimated from April 2005 to March 2006, according to new Labor Department estimates.

    Preliminary tabulations of employment from state unemployment insurance tax reports show the estimate for total nonfarm payroll employment in March 2006 will require an upward revision of approximately 810,000 —————–

    + 810,000 jobs !!!!!!

    they can’t possibly expect us to believe this stuff anymore

  20. diva commented on Oct 6

    As I have always said: ADP was right and the Govt info was wrong…… as they now admit (I guess they just looked at the tax returns)
    I knew what I was saying….. as I know ADP (and how they collected their data) and I have a better than average idea of how the giant govt nonsense is done (having spent time on the Hill and within DOE)
    I LUV it!!!!!!!!!

  21. Paul Jones commented on Oct 6

    What impact do fluctuating prices at the pump have on the month-to-month retail sales figure?

  22. Bob A commented on Oct 6

    Re commercial construction. In Bellevue, WA (Seattle/Redmond) the last of the stalled office building construction sites from 2000 has finally just now resumed construction. Cranes are everywhere. Vacancies are down from 30% in 2002 to 7%. Buildings are selling and reselling at record prices. The next glut/slowdown should be about two years away. Doesn’t mean crash. But the cycle will likely repeat. It seems it always does.

  23. cm commented on Oct 6

    Barry: “Qualified” does not mean (only) “skilled”, but rather more generally “meeting specifications/criteria”.

    From my vantage point (software industry), employers often hire for jobs “as we like them to be”, not “as they are”. There is many an R&D job where employers think the holder should be pushing the “high-tech” envelope, where in practice the work is far more mundane (e.g. a substantial portion of working in a legacy environment with all that entails).

    Aside from overdescribing jobs and credentials, and discouraging genuinely qualified people (but not those who habitually lie on their resumes), employers don’t favor the unemployed, and prefer people switching from another job. But for that they don’t offer enough compensation to make it worth the risk, and perhaps expense. Few want to switch from a known environment to an unknown one, with the expectation that overall everything will be the same, including the pay.

  24. Hockeyman77 commented on Oct 6

    The BLS is useless i have said that before not only were they off over 40% last month, but they say they were off 800K plus jobs. Are they just rolling dice, the data is useless from them, they shouldnt even bother without some form of accuracy and whats scary is that the markets accept it. What job of any significance can you be off 40% on a reglular basis, seriously. Only in the government, the household survey is much, better. The economy is softening just not as fast as the Bond market seems to think it is, it won’t be till late 07 before housing really begins to drag down the economy.

  25. Cherry commented on Oct 6

    You can’t count commerical construction to “hold up” that much. When Residential construction actually lets go, even commerical construction won’t be able to offset many of those declines.

    The worser thing is, Commercial contruction is almost at the same point Residential contruction was at last year, uh oh.

    The BLS is crooked, their numbers have not matched reality since the Buch era started, that “unknown” 810k jobs is pure political pandering.

  26. Mike commented on Oct 6

    If the BLS numbers weren’t confusing enough, consumer credit came out at $5.0b, but… the prior month was revised from $5.5b to $8.4b. Makes forming a sound investing decision very difficult.

  27. Sherman McCoy commented on Oct 6

    Color me conspiracy theorist, but a 810,000 revision for March 05 to March 06, on the month before the elections, from an administration that routinely overestimates budget deficits so that their aweful performance at least beats the estimate… ummm… could this be a little jimmy to bounce up the market a little? Call it the “Foley payroll effect”??

  28. ac commented on Oct 8

    The spread of unemployment was actually even at a consensus of 4.7%, so it tickles me that is came out as “4.6%”. Purely political and nothing wrong with that. The Clinton era BLS did the same thing during the 96, 98 and 2000 elections. Though the Bush era BLS has more than necessary taken the low road with %’s. Something I am sure is also political pressure due to the icy situation developed between Bush and the people.

    Claims should not be ignored. A better way caculating unemployment rather than %’s. Considering claims have averaged around 310-315 for the this year, this tells me the unemployment rate has been about 5.0%. Good, but in 2000, claims averaged around 275-80 after the whopping late 90’s job boom which was represented a % around 4.0% which was undoubtly better and signifigently below full employment.

    Matter of fact, 2006 claims data has been similiar to 1997 in its averages, but lagging behind 98-00.

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