I mocked yesterday’s NFP report, and a sizably stunning percentage of readers didn’t get the humor (and on a day off, too). My assumption is that these are people who are unfamiliar with my slightly skewed sense of humor.
To contextualize that, a few more words are in order, and then a nod to another voice on NFP worth hearing.
Let’s begin with a quick word on cognitive bias. Humans are guilty of this — selectively perceiving and recalling what agrees with their world view. We are all guilty of this, and while we cannot escape it, being aware of it at least allows some measure of recognition, and perhaps, adaptation to the phenomena.
Let’s use the NFP data as an example: Consider another bias, the Human tendency to overemphasize more recent data versus the totality of information and the overall trend. This is a cognitive bias known as the recency effect. Despite the overwhelming evidence showing this to be a generally weak jobs recovery (the worst since WWII), our primate brains interpret a single good data point as proof of something better. Perhaps this helped our ancestors recognize the coming of seasonal changes; those with the bias mated in the spring and passed on their genes, and those without didn’t (hence no progeny). Alex, I’ll take Pop-Evolutionary theories for $100, please.
Regardless, we also see some of the soft prejudice of low expectations in yesterday’s data: 180k is hardly a rockin’ strong number, relative to population growth,. Put that into the context of recent expansions such as the 1990s. Oh, and in that more recent period, there was no BLS Birth/Death adjustment, responsible for nearly a million fictitious jobs in 2006.
For those of you who may have missed my sarcasm, consider the Liscio Reports’ irony-free take on yesterday’s NFP. Here’s an excerpt via Barron’s:
"As our keen-eyed friends at the Liscio Report, Philippa Dunne and Doug Henwood, observe, this was a "good employment report but not the blowout some are taking it for." For openers, the perceptive pair surmise that just as February’s stingy job additions were partially the result of cruddy weather, March’s upside surprise got "a compensatory meteorological lift."
The rise, however, was concentrated in a relatively few sectors. Once again, they note, health care and bars and restaurants were major sources of fresh hiring (and once again, we might interject, these are typically not big-bucks jobs). Retail did pick up nicely, to be sure, but manufacturing, alas, couldn’t kick the habit of shedding jobs.
Ominously, too, Philippa and Doug point out, professional and business services, "the heart of the post-industrial economy" was a loser, its first decline since November ’04. And temp employment made it two months in a row on the minus side, indicating "not a lot of pent-up hiring demand for future months."
And they add that the household total, in which desperate bulls invariably seek solace when the payroll numbers are soft, was up 420,000, but only after an extraordinarily depressed February, which suffered a loss of 278,000 slots. That works out to a pretty feeble average over the past two months of 71,000, hardly suggestive of "underlying strength that the establishment survey is missing."
As we intimated, at first blush investors are likely to find the apparent strength of the job market as discouraging any thought the Fed might have entertained to cut rates in order to shore up the economy. But we suspect that, to judge by the abundant evidence that the economy is slowing and will continue to do so as the collapse in housing plays out and the consumer’s urge and ability to spend fade, there’ll be more than one disappointing employment report in the months to come." (emphasis added)
That sounds about right, and — dare I say it? — fair and balanced . . .
Z
Source:
Little Bit of Blow
ALAN ABELSON
Barron’s, April 9, 2007
http://online.barrons.com/article/SB117580263690761266.html
graphic courtesy WSJ:
March Jobs Data Show Vigor
Broad-Based Hiring, Rising Wages Dash Rate-Cut Predictions
BRIAN BLACKSTONE
WSJ, April 7, 2007; Page A3
http://online.wsj.com/article/SB117586221229062074.html
With a slowing economy, tightening lending standards, and a negative savings rate, it is rather fanciful to believe the birth/death model created 128,000 jobs – in fact, I would say beyond fanciful thinking and into full blown fantasy, which oddly enough is the same locale in which resides Goldilocks and the Three Bears.
Unemployment falls to a five-year low, and it’s reported as another sign of the coming apocalypse.
Fair and balanced? Or just a prominent bear trying to rationalize away good news?
I report, you decide.
Here’s hoping this shameless violation of the trademarks of News Corporation goes unnoticed this holiday weekend.
Just speaking out of my pen, I thought that we had enjoyed a rousing housing/mortgage growth spurt that had been touted by market fans as rational, unstoppable proof and explanation for the health of the economy and the performance of stocks with nary a sign of any kind of bubble attributes, well, until the bubble popped, that is. Just hypothetically, say the housing/mortgage locomotive were to slow down ever so slightly, what exactly would be stepping in at the moment to sooth the bruise? If I heard it right, housing is an immense force in the U.S. economy and, if I’m thinking straight, most forces can exert pressure, alternatively, up and down. Just for discussion, what would be the countervailing force to a reduced housing market? For the economy? For jobs?
Would it not make at least some sense that job growth may slow in the coming months, if the housing/mortgage businesses were to slow a tad?
NEW YORK (Reuters) – Citigroup Inc. (C.N: Quote, Profile, Research), the largest U.S. bank and one of the largest U.S. mortgage lenders, is telling brokers that on Monday it will stop making some riskier home loans, documents obtained by Reuters show.
The move follows decisions by Countrywide Financial Corp. (CFC.N: Quote, Profile, Research), Wells Fargo & Co. (WFC.N: Quote, Profile, Research) and other major mortgage lenders to tighten their underwriting standards as homeowner delinquencies and defaults increase…
CitiMortgage made $50.6 billion of loans between October and December, ranking third in the United States, according to National Mortgage News…
http://www.reuters.com/article/bankingfinancial-SP/idUSN0520976820070405
Yea, everything is going to be just fine.
something to think about
http://www.marketwatch.com/news/story/jobs-report-set-weak-tone/story.aspx?guid=%7B5196E765%2D803C%2D4B25%2D9C8F%2DCC7F02E25932%7D&dist=TNMostRead
“prominent bear”?
I’ll let Barry respond if he chooses, but I’d consider him more of a nuanced realist.
As he’s posted ad nauseum…forecasting has its limits and subject for appropriate modification given appropriate new information.
First, I enjoyed your humor yesterday, as I usually enjoy your postings. You produce a great blog! Some people are just literal, like focusing on the most recent data point without the longer view.
Based on a straightforward empirical index, the expected average jobs number for March is 186,000. Obviously, 180K is close to that average number. A strong showing, however, would be more like 270,000 jobs. I don’t mean this comment to be partisan — it is a ratio I have at hand — but the 270K figure is based on the longterm Democratic average (from Jan1949 through Dec2000).
A description of this index with charts will be posted Monday on Angry Bear.
Well, if u think March’s B/D model was large, wait until April’s. (according to Crudele)
Does this mean 10 Yr T yields continue to rise for another month?
The Recency Effect. That is good to know. We see it in spades with regards to Global Warming but the Believers take it one step further. For when instead of a Recency Effect of heating it gets really cold (like now) the GW folks consider that to actually be a Recency Effect as ‘it shows the turbulence’ of the real Global Warming.
I am in the midst of a search for a new job (although I am currenly employed). The number of phone calls and interviews I have to chose from is enormous. Recruiters are saying they haven’t seen the job market this good since ’92. While I am in a hot occupation (Accounting/Finance), this must bode well for the economy. I don’t think all the new jobs are burger flippers and candy strippers as this blog would lead you to believe. I know I won’t be getting paid minimum wage at my new gig.
Jdamon – The NAR says this is the best time ever to buy a house. The point being that the recruiters want you to change jobs so they will say what they said. You are in a hot field thanks to accounting issues and regulation turmoils. Go try for a job in housing or manufacturing (had been the best paying blue collar jobs in the world at one time).
reticular activation system
“Good but not a blowout” sounds just about right. The birth/death adjustment is a necessary part of the estimation process. If you have a methodological criticism, make it, but simply repeating that it’s “fiction” doesn’t advance the discussion. BLS statisticians may not make the big bucks, but they’re not picking numbers out of the air, either.
As for the “hottest job market since ’92,” recruiters are lying to you. The late-’90s job markets were much, much tighter, and 1992 was not tight but loose. That was in fact the worst job market the US has seen since the 1980s, worse even than the 2002 trough. Here, look at the employment-population ratio (PNG). Yes, we’ve been headed up in a nice, little jobs recovery since the last recession; no, the job market is not historically tight, and hell, no, 1992 was not a good job market.
Quote Rick Hanley: “Would it not make at least some sense that job growth may slow in the coming months, if the housing/mortgage businesses were to slow a tad?”
One would think. Regardless of the current labor numbers, you have hit upon the crux of the economy – debt creation.
Big Ben understood this when he talked about credit availability as being a key concern going forward.
And why would that be? Consider this exchange: From Hari Heath of the Idaho Observer.
“Chairman of the Federal Reserve Board, Marriner Eccles testified before the House Banking and Currency Committee September 30, 1941. He was asked by Congressman Patman, “Mr. Eccles, how did you get the money to buy those two billions of government securities?” Eccles replied, “We created it.”
Patman asked, “out of what?” Eccles answered, “out of the right to issue credit-money.” Patman then asked, “And there is nothing behind it, is there, except our government’s credit?” Eccles responded, “That is what our money system is. If there were no debts in our money system, there wouldn’t be any money.”
And this from the same source: “Robert Hemphill, a credit manager of the Federal Reserve Bank in Atlanta, described the situation in the foreword to Irving Fisher’s book, 100% Money: “If all the bank loans were paid, no one could have a bank deposit, and there would not be a dollar of coin or currency in circulation. This is a staggering thought. We are completely dependent on the commercial banks. Someone has to borrow every dollar we have in circulation, cash, or credit. If the banks create ample synthetic money, we are prosperous; if not, we starve.”
Some bullet points from the same article:
* Consumer Debt exceeds the National Debt.
*The typical family spends more than 90 percent of its disposable income servicing debt.
*40 percent of American families annually spend more than they earn.
*About 60 percent of active credit card accounts are not paid off monthly.
*Average card debt among people who have at least one card is $9,205 — triple what it was in 1990.
*The average interest rate on credit cards is 18.9 percent.
Tightened lending standards – a money squeeze – that would be the killer.
Let’s face it you were wrong…
It happens..
Does that mean you change your mind?
If nothing will change your mind, i.e., your prior is zero.. that’s religion… no learning..
But any rational person, should be less sure of what he thought before this number than after.. no matter what…
That’s already translated into most “bears” on the economy pushing back their “certainty” that the FED was going to EASE.. to September or later..
The market in general is now pricing 80% probability that the FED is on hold for most of 2007!
Wittgenstein said that: Certainty is just the inability to imagine the alternative…
There is no way these jobs numbers are not bogus at this stage, what a travesty. What’s amazing to me is how they are being discussed as real. Just taking the 3.3 million people (including contractors) who work in residential construction alone we can see that housing completions between Sept-Feb are already down 18.4% and sinking fast.
http://www.census.gov/indicator/www/newresconst.pdf
That’s over 600,000 jobs.
Even if much of this represents reduced work for contractors rather than actual full job loss, the effect is the same. To think the job market added 54,000 construction jobs in March is patently absurd.
I have gone through and posted about 40 recent news reports in the comment section here to illustrate this. Incidentially Federal and state WARN laws exempt construction layoffs making this a tough one for the canards putting the data out to track in a timely manner.
http://wallstreetexaminer.com/blogs/winter/?p=600#comment-20196
Barry,
I argue that the jobs report underestimates the strength of the economy, and has been for some time. The internet has allowed many more people to become self employed. Think of all of the online p0ker players, stock daytraders, Nigerian 419 type scammers, adult entertainers, and countless others, who make their living uncounted by the BLS. The underground economy is bigger than ever.
Post by fat mary : reticular activation system
Does that suggest contagion or over complication?
Is your spamdex too tight?
Fair may be, but not balanced.
The housing drama is being massively exagerated, in another example of recency effect.
First, a 5% recent fall overshadows the 100% rise in the preceding years.
and then, the moderate reduction in economic growth is predicated to be a recession.
Come on!
May a recession come? Yes, and also it may NOT come.
Are the current labor market evidences forecasting a recession?
Absolutely not.
Amateur
How many recessions have you predicted, you know, before we were already there?
It is something that, at best, one can take a shot at reasonning out as being increasingly likely based on a large multitude of factors.
If China dies and makes us the heir to their trillion dollars of currency reserves, we will be alright. Well, being that we are party animals, most of us probably won’t live long but the economy will be cherry.
On the other hand, things are not so good when looking at numerous metrics as they used to be. If you will allow that at some point there will be another recession, it may be true that we are a little closer to the next one than we were 4 years ago.
Nova Law-
Are you the same Nova Law that posted rants on Bill Cara’s site threatening lawsuits and such against him? Are we over the blogger as guru-God thing yet?
Don’t be so hard on Nova Law. A guy (assumption) who goes around posting snarky, insulting comments on blogboards obviously has a lot of personal problems. He is what mental health professionals describe as a “clinical a-hole.”
Have some sympathy for the guy (assumption.) If any posters here have experience in psychotherapy and proctology, it might be helpful to drop Nova a line and offer your assistance. I’m sure it would be much appreciated.
Although I got your sarcasm on Friday, this is a much better post Barry. It puts you squarely in the realist camp, whereas I thought most of last week was regurgitated financial armeggedon hype.
The employment numbers are important because so many market participants count on them for information. However, it seems quite obvious that so many of the government stats created in the first half of the 20th century miss alot of what happens in today’s economy. Barry hit on this with a post last week about the detail in the jobs gains by company size. So much is happening in the smallest companies that cannot possibly be discovered by the bean counters.
We keep bleeding manufacturing jobs, yet manufacturing output, according to Big Ben and Co., is the greatest ever. So are the falling manufacturing jobs a sign of coming doom, or booming productivity?
My 2cents is that the economy is clearly slowing but the perma-bears are like the doctor who smokes: smart enough to know better but too intellectually lazy to think things through.
Sorry for the double post. A wireless deadspot fooled me.
for those who might
desire historic
perspective
global
explanation
description
context
and who have
an hour to
spend lis
tening
try this 4/4/07
interview
agree or not
worth some
thought
please use comp
uter be
tween
ears
while listen
ing
“Fictitious Capital, Real Retrogression”
“Interview with independent writer and activist, Loren Goldner. Loren Goldner is author of numerous articles on political economy including “International Liquidity Crisis and Class Struggle”; “The Dollar Crisis and Us”; “1973 Redux: Continuity and Discontinuity in the Decline of Dollar-Centered World Accumulation”; “Two Short Texts on Economic Crisis and War”; and “Fictitious Capital and the Transition Out of Capitalism”, among many other essays.”
http://kpfa.org/archives/index.php?arch=19534
Rick Hanley:
I am not in the bussiness of predicing recessions, and I dont believe either that the US economy has abolished cycles.
The present slowdown is being overplayed, though. It may get worse, but the hard evidence until now does not show the GDP as going to contract any time soon.
Final demand is still growing at 2+% pa, real, liquidity abounds, and any reduction in final demand, if t ever happens, will fall more on imports than on US GDP.
Doom may -will- eventually arrive; but not so fast. Not before UST 10Y rates rise significantly. IMVHO.
I have NEVER seen as many “Help Wanted” signs as I do now. Granted, I live in “oil country”, a bit north of Houston, but the economy here is EXPLODING.
And there are tons and tons of illegal immigrants here, as well.
Anybody who bases economic forecasts on jobs numbers is going to be wrong more often than not.
Barry, seriously, you need to take a step back and objectively analyze why you have gotten the economy so wrong for so long.
It appears that your inner Democrat is overwhelming your inner investment professional. Do you still post frequently on Eric Alterman’s blog? I recommend staying away from hysterical, Bush-hating liberals. They have very little to offer those of us who are interested in getting an accurate picture of where our economy is going.
~~~
BR: Dogstar — I have gotten the economy pretty dead on — more accurate than most economists.
If you want to disagree with my economic view based on 1) hiring in Houston’s Oil industry or b) one months NFP — feel free to.
Is that why the blogging community is so unreasonably bearish on the economy? Because everyone hates Bush so much? It’ll be interesting to see if this persists when Hillary wins in ’08.
“I am in the midst of a search for a new job (although I am currenly employed). The number of phone calls and interviews I have to chose from is enormous. Recruiters are saying they haven’t seen the job market this good since ’92. While I am in a hot occupation (Accounting/Finance), this must bode well for the economy. I don’t think all the new jobs are burger flippers and candy strippers as this blog would lead you to believe. I know I won’t be getting paid minimum wage at my new gig.”
Finance is supposed to grease the wheel. When it becomes the wheel you’ve got to ask yourself some questions.
Talk about “recency bias”. It’s obvious too many economic bulls are projecting current circumstances well into the future. Look how well that worked for all the housing bulls.
Talk about “recency bias”. It’s obvious too many economic bulls are projecting current circumstances well into the future. Look how well that worked for all the housing bulls.
Talk about “recency bias”. It’s obvious too many economic bulls are projecting current circumstances well into the future. Look how well that worked for all the housing bulls.
Talk about “recency bias”. It’s obvious too many economic bulls are projecting current circumstances well into the future. Look how well that worked for all the housing bulls.
Talk about “recency bias”. It’s obvious too many economic bulls are projecting current circumstances well into the future. Look how well that worked for all the housing bulls.
Talk about “recency bias”. It’s obvious too many economic bulls are projecting current circumstances well into the future. Look how well that worked for all the housing bulls.
Talk about “recency bias”. It’s obvious too many economic bulls are projecting current circumstances well into the future. Look how well that worked for all the housing bulls.
Talk about “recency bias”. It’s obvious too many economic bulls are projecting current circumstances well into the future. Look how well that worked for all the housing bulls.
Talk about “recency bias”. It’s obvious too many economic bulls are projecting current circumstances well into the future. Look how well that worked for all the housing bulls.
Talk about “recency bias”. It’s obvious too many economic bulls are projecting current circumstances well into the future. Look how well that worked for all the housing bulls.
“I have gotten the economy pretty dead on — more accurate than most economists.”
Respectfully disagree Barry. You’ve been calling for earnings collapse and recession for quite a while now. How many time have you posted the phrase, Hard Landing?!!
~~~
BR: 28% Year-over-year S&P500 earnings, down to 8.9% in Q4 2006 and falling. The consensus forecast for Q1 is 3 – 6%
The phrase “hard landing” appears 107 times, including by poster in comments. (That’s what the Google search feature is for at right — do you want me to chew your food for you also?)
MarkM – It’s a Cara lie that I’ve threatened him with a lawsuit. All I did was suggest that he was putting himself at risk of being sued by his disappointed investors by giving out bad stock advice and resolutely failing to disclose his personal positions behind those recommendations.
If you think there’s no risk in things like that, ask Joe Nacchio what he thinks.
~~~
BR: Hence, my disclosure statement
“Recency effect” as it has been referred to here, is actually “anticipitory generalization”, a strong instinct related to hunter/gatherers of the animal kingdom and the basis for learning. An example might be animals frequenting locations where they were previously successful (IE: have *learned* where food is likely to be.
This is why doggie treats work and traders continue to trade. The upside, the reward.
This response is so reliable that it can be used to train almost any animal that can perceive a positive stimulus. Like dogs or traders.
And this positive reinforcement is 60% more powerful than a negative reinforcement which is why we see the explosion of positive training in dogs (see clicker training, positive reinforcement, conditioned response, B.F. Skinner)and day traders.
Animals capable of defense will defend their source of reinforcement (mainly food, but sex, drugs, power and money work in studies) and attack those that might offer *reason* that endangers their possible reward, real or perceived.
So now we have an idea of motivation to attack Barry and to remain the same.
IE: Reject change.
1. Instinct to repeat previously successful methods.
2. Defense of said source of positive reinforcement. Read profits.
This explains why some are so defensive of their positions. Barry’s view threatens their cookie treats.
To explain Barry’s motivation isn’t as easy because reward isn’t present. There is no reward in offering a perceived negative, which some of you so handily prove. He doesn’t reveal all his positions or talk his book. No, it’s just the desire to provide real information on his blog to those who care to listen.
Barry cares, which of course cannot go unpunished, so he also is forced to endure stupid animal territoriality and greed masquerading as political stupidity as well. Oh goody.
Bummer when those who accuse Barry actually reveal their on motivations (and his) and remind us of the old addage, “You judge others by your own morals”. Or in this case, your primitive instincts.
All cavemen step forward.
I think some confuse blogging and informing with advising.
Even if you are paying for market information or analysis, it is rarely presented as advice and almost always contains a disclaimer making the investor responsible for their investment choices.
This blog and others like it (Bill Cara) don’t offer investing advice. They may offer actionable information but it is your responsibility if you choose to act on it.
It isn’t investing advice.
The NFP didn’t adjust to the extra hour, their data is worthless untill they do.
Jdamon: Some job markets, and based on anecdotes I’m concluding most requiring professional degrees, are artificially tight as companies restrict themselves to hiring only “heavy hitters” with specific skill profiles and specific industry experience, and of course a flawless employment history. Most of the people matching this have reasonably secure jobs, or have high standards for a job too, which is why filling those positions is so tough. It’s not necessarily that there are *that* many new jobs, although there has probably been a spike in finance due to SOX and similar new regulations. By what I have seen (not precisely in finance), many professional positions where (highly experienced) people are “desperately” sought (but at medium-market range and with some lowballing) can be explained by attrition. But “mysteriously” companies are very reluctant to raise comp or consider merely generally capable people who may have to be trained up a bit.
Hot Air Balloon Theory of Economics
The housing bubble and home equity withdrawl were two very large jets that have injected a lot of hot air into the economy – enough in fact to keep the balloon on an upward trajectory inspite of trade balance “rips” and consumer debt obligation “tears”.
While these jets are now turned off, their intense heat is continuing to spread inside the balloon and it still rises, but at a slower rate of ascent.
The rips and tears in the balloon are too big to sew up in time to keep the hot air in.
Without new sources of hot air, the balloon will cool and begin to descend.
In my opinion, the current general expansion of the economy can be attributed to the housing and home equity bubbles. This is masking the extent to which the economic fundamentals have been deteriorating. Without new sources of fuel, the balloon will begin to fall.
Will the Federal Reserve lower interest rates soon enough to ignite more fuel before the balloon falls too far? When the Fed does lower interest rates, what fuel will it ignite?
I am having a hard time identifying what these fuel sources will be. Exports maybe? Will this be enough?
NovaLaw-
After reviewing some of your posts on this topic, I concede that in none did you threaten to sue him. You invited others to do so. I stand corrected.
“shameless violation of the trademarks of News Corporation”
And to think I thought Bill O’Liar lost that case.
“The internet has allowed many more people to become self employed.”
More of Dick Cheney and the E-Bay entrepreneurs. You should have included the half million real estate agents in California also.
MarkM, are you taking prevarication lessons from your buddy Bill Cara? What I said was precisely this:
“Cara should be ashamed of himself for causing innocent people to lose money by pumping up KRY. Perhaps someone will be angry enough to file a civil action against him. Given his consistent lack of disclosure and dubious reliability, such a case would be an interesting landmark.”
http://gold.seekingalpha.com/article/24575
Cara has a long history of misstating and distorting what other people say. He has made a point of publicly insulting Barry Ritholtz in his blog, describing a time when he hacked into Ritholtz’s private site and accused falsely Barry of failing to make proper disclosures. Coming from Cara, who is the King of Non-Disclosure, this was quite funny for those of us who find Cara’s hypocrisy amusing.
http://tinyurl.com/2jeo7z