Yeah, its that time once again: NFP day.
I am of the mind that forecasting this number is an exercise in futility. The "official" release does not seem to square with other data — withholding tax, sentiment, earnings, and even anecdotal — suggesting that employment is flaccid, and moving in the wrong direction.
Even the consensus this month is tough to track: 40k (Marketwatch), 50k (Barron’s), 55k (WSJ).
Regardless of the folly of forecasting, I expect this month’s NFP will be the first six figure job loss of this cycle. BLS has not released a drop of that magnitude since March 2003 — just before the new Birth/Death model was implemented 5 years ago. Coincidence? I think not.
The trend of new job creation is down, while unemployment is up. Hence, I am definitely taking the Under this month. I suspect the consensus to be off by a magnitude of 2X or even 3X.
Consider the recent data:
• ADP private dropped 79,000 in June. ADP has consistently overstated payroll growth since their Jobs Surge forecast in December. Average overstatement = 93,000 per month (do the math yourselves)
• ISM employment fell from 45.5 in May to 43.7 in June, the lowest since May/03.
• Weekly claims for
unemployment benefits continue to rise; Continuing claims last week were at their highest levels since Feb ’04.
• Conference Board survey question ‘jobs are hard to get’ versus ‘jobs are plentiful’ is at its worst level in 5 years (December 2003).
• Challenger layoffs were 81,755 June, up 46.7% year-over-year in June.
• Major layoff announcements were up to 275,292 in Q2 — a 39.4% year-over-year gain to a 3 three year high;
• Hiring plans are down 63.7% from a year ago and 36% month-over-month.
• Monster employment survey slipped again this month (Disclosure: We are short MNST)
Hence, we have the potential for a startling drop in NFP this month. Especially with this report, your mileage may vary . . .
Chart courtesy of Gary Shilling
High Unemployment Ahead
Economic Research and Investment Strategy
July 2008, Volume XXIV, Number 7
Recession reality has not receded
David A. Rosenberg
Merrill Lynch, 02 July 2008