Rosenberg: NFP ‘Mega Reality Check’

David Rosenberg is quoted in Alan Abelson’s column this week, calling the employment report “a mega reality check.”

The jobs data, according to Rosie, was “horrible…not just the headline but also the details.” He say that the data should make those who believe that 1H weakness to be merely transitory back to their drawing boards to rethink their bullishness. And, he adds, we should stop ignoring weak consumer-confidence surveys, as they are a byproduct of the crummy job market.

The hiring freeze is rather simple to understand: “Pure and simple, business is jittery about the macroeconomic outlook, especially with the Fed fading into the background and fiscal policies swinging from stimulus to restraint.”

Various stimuli gave the economy a “brief sugar high, but now that’s over:

“Now the policy cupboard is bare, and “we can see what the emperor looks like disrobed. It’s not a pretty picture.”The economy, Dave goes on, is in a very fragile state. Which isn’t all that surprising since it still bears the scars of the credit and market collapse and the Great Recession that accompanied it.

However, historically, such ugly episodes—and there are quite a few slumps and crashes in the postwar period—are not typically followed by recoveries as flaccid and as pathetic one has been.

Particularly rare is to see an economy that’s supposedly well into recovery produce the likes of a puny 18,000 monthly job gain. For a recovery worthy of its name, Dave contends, celebrating its second anniversary you would expect employment to rise more on the order of 180,000. It’s hard to overlook that missing zero in Friday’s headlines.

Scanning the gory details of the data, Dave notes that the total of unemployed in June swelled by 173,000 and exceeded 14 million for the first time this year. Including discouraged workers, the pool of available labor soared by 483,000 to 20.6 million, which works out to seven people vying for every job opening. The normal ratio is close to three.

The logical question, he writes, is what are the prospects for a rebound in July? Not great, he says. In the June report, virtually all the tell-tale indicators of what’s ahead—temp hiring, the decline in the workweek, since “hours tend to lead bodies,” and the revisions, which have a habit of feeding on themselves—were negative.

In his summing up, Dave points out that: “Here we are, two years into an economic recovery, and the level of employment at 131 million is actually lower than it was in March 2000. At this stage of the cycle, what is normal is that payrolls are making new cyclical highs. This time around, barely 20% of the recession losses have been recouped.”

Yes, the recovery is mediocre. But that is exactly what is should be.

As we have noted ad nauseum, the typical post WW2 recession recovery cycle is the wrong metric for comparison. As Reinhard & Rogoff have so conclusively demonstrated, post credit-crisis recoveries should be your (and Dave’s) frame of reference. These are described as mediocre, low growth, anemic job producing affairs.

The dismal set seems to be particularly surprised by the stinky data. They should not be.


Horror Story
Barron’s Up and Down Wall Street July 9, 2011

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