Friday, October 02, 2009

Jobs: You... want... this...

I was all set to write a post today about how little I thought the jobs number mattered. How it is one of the most over-rated releases (maybe second to consumer confidence). Then the stock futures sell off 100 points and I smile, because its making my argument all that easier. Now we've traded back to flat. Blast! Whatever. I'll make my point anyway.

I've written several times that any number which doesn't predict anything isn't worth much to traders. Job growth is a notorious lagging indicator, so why should I put any stock in the Non-Farm Payroll number? Especially since there is a lot of seasonal adjustments and other extrapolations in these numbers. I refuse to read much into any given monthly number.

The exception is when it comes to Fed policy. If the number had come in very strong, say flat job growth, then I would have assumed a Fed hike was coming much sooner, maybe even January. The Fed has historically not been willing to hike rates while unemployment is rising. So if employment surprised big to the upside, that would leave the Fed much more willing to move. As it is, the number is steeply negative, and thus leaves unemployment flat to worsening. Not good, but not fundamentally different that where we were before the number.

In my mind, the economy remains a mixed bag. We will be getting some positive GDP growth for the next couple quarters as we rebound from the sharp decline of Q4 and Q1. After than bounce, we probably grow very slowly or possibly slip into a mild decline. The data supports this view. Just consider the non-job related numbers of the last two days: Personal income rising very slightly, Personal spending showing some signs of life with a 1.3% increase. Yet the ISM comes in at a tepid 52.6, which follows up on weak regional PMI numbers. Pending home sales looks solid at +6.4%. I still think Case Shiller is telling us home prices are bottoming. That's good.

So like I said, we may grow at a very tepid pace or we may slip back into mild negative growth. I think the difference will depend on how consumers react to the withdraw of government stimulus. My personal opinion is that the stimulus achieved less than what many perceive. Somewhat paradoxically, that's a relatively bullish thought since if the stimulus programs didn't do much, then the current uptick in consumer spending is sustainable on its own.

I think home sales, consumer spending, and manufacturing data are the statistics to watch most closely. Forget about job growth.


In Debt We Trust said...

The Bureau of Lies and Scandals revised its figures by losing an additional 824,000 jobs in LTM period ended March 2009, in addition to the already disclosed 4.8 million job losses.

I like this comment:

"All this simply means is that once the full extend of the collapsing employment picture is revealed on February 5 next year, the market will explode to record highs: after all the worse the economic news are, the better for the stock market."

Translation - the worse the news is the faster the rate of liquidity ops that grant free money to PD's and other well connected insiders to gun the futures higher.

Anonymous said...

aren't fewer jobs, i.e. earnings, yesterday indicative (i avoid "predictive" deliberately, here) of lower consumer spending today and perhaps, tomorrow?

Accrued Interest said...


This is a popular view but not supported in the data. Think about it, if lower employment always meant lower consumer spending, then it would be a never-ending cycle. I think whats more common is that as conditions improve, people get temporary work or work more hours, and thus spend more. The actual hiring of new people comes last.

Anonymous said...

Employment has always been a lagging indicator...except in a deflationary event like now. Consumers are leveraged to the hilt, and every job lost is another mortgage in jeopardy or credit card default. In other words, more fuel for the economic firestorm. You could discount unemployment in the past, not now. The market's initial reaction was the correct one. We'll go there eventually when the full impact what's happening dawns on it.

Accrued Interest said...


That's a fair point, but again not supported by the numbers. Delinquencies are not accelerating with employment. They are slowing down.

I take a different view. We'll basically have two sets of delinquent borrowers: the bad loans and then the "normal" delinquencies. The first category is burning out. The second category is going to be more correlated with employment.

But regardless, don't we want to watch delinquencies themselves instead of infering delinqeuencies from a statistic that has historically predicted nothing??

Anonymous said...

Delinquencies are slowing? I don't see it.

With a real unemployment rate of 16% and climbing look for a longer handle on this hockey stick over time. People who are unemployed and without savings can't pay down debt.

Anonymous said...

I'm no expert but there are maybe some consequences of higher unemployment at the margin. Like the nominal level of debt, maybe some levels of unemployment trigger consequences, at least subpar growth.

Besides, NFP showed that hours worked decreased 0.1 to 33 which is -some say- a leading indicator ?

Anonymous said...

Your charts are a small subset of totals loans. most of the market is fannie/freddie/fha and their delinquencies are going up rapidly and are in the 4% range not the >10% range in your charts. Your charts are basically the bad loans (mostly securitized) that were made to people who could only pay if their house went up in value. You need to look at the "good" loans - fannie/freddie/fha delinquencies to see what unemployment is doing to delinquencies. IT IS NOT LEVELING OUT. It looks just like that Fed chart you show.

Anonymous said...

fha programs can help those who are in need of jobs

RSA said...

Business is like a roller coaster too. There are ups and downs. It’s your job to keep it going. Good luck.

Retail jobs said...

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