August Payrolls-Stall Speed
Posted by WARREN MOSLER on September 7th, 2012
Karim writes:
Very poor job data with a gain of only 96k and a net revision of -41k. Somewhat offsetting is the 0.2% drop in the unemployment rate from 8.3 to 8.1% (which along with April 2012 is the lowest since January 2009). The biggest swing (and miss) was manufacturing employment, which shifted from a gain of 23k to a fall of 15k, indicating that global economic weakness is affecting U.S. exporters. Indicators of domestic demand fared better as trade swung from a gain of 11k to 29k jobs, finance from -2k to +7k, and leisure/hospitality from 28k to 34k.
Though August payroll data is typically revised higher, the data affirms the notion the economy is hovering around or just below trend growth of 2-2.5%.
The data increases the chances of QE3, unsterilized and possibly open-ended purchases of Agency MBS and USTs, but I still think later in the year. An open-ended program likely requires a consensus Fed economic forecast, which is still a work-in-progress. Next week’s FOMC meeting will be contentious, and a close call, however.
Other data highlights:
- The drop in the unemployment rate came as a result of a drop in the participation rate from 63.7% to 63.5% (labor force fell by 368k).
- The U6 measure improved from 15% to 14.7%, but the median duration of unemployment rose from 16.7 weeks to 18 weeks.
- Average hourly earnings were unchanged and aggregate hours gained 0.1%, a weakish combination for personal income.
- The diffusion index dropped from 54.3 to 50.2
Some interesting charts from SMR:
Over the past 20 years August payrolls have been revised upward between the 1st and 3rd release on 16 occasions.
The magnitude of the August payroll revisions over the past 10 years has far exceeded any other month of the year. Over this period the August reading has been revised upward by an average of 62,000, in contrast to the next largest month (November) at +27,600.
September 7th, 2012 at 11:39 am
“The data increases the chances of QE3, unsterilized and possibly open-ended purchases of Agency MBS and USTs, but I still think later in the year. An open-ended program likely requires a consensus Fed economic forecast, which is still a work-in-progress. Next week’s FOMC meeting will be contentious, and a close call, however.”
By open-ended purchases, do you mean that the fed might begin targeting rate as opposed to quantity?
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WARREN MOSLER Reply:
September 8th, 2012 at 3:22 pm
karim wrote it. it’s possible they could target rates
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Ed Rombach Reply:
September 9th, 2012 at 11:43 am
@WARREN MOSLER,
At least that would be something new. If QE3 is simply the same in practice as QE1&2, then it runs the risk of running into diminishing returns, which were minimal to begin with. The result could end up being just the opposite of past experience. The fed would run the risk that market participants might use it as an opportunity to sell equities, commodities and credit. Anyone who has been listening to your argument that QE drains interest income away from the economy may be inclined to buy the rumor and sell the news. I don’t think Bernanke wants to be exposed as an emperor without clothes.
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Security Guard Class 4 Reply:
September 9th, 2012 at 12:21 pm
@Ed Rombach, http://www.zerohedge.com/news/guest-post-analyze-fed-not-printing-enough-money
Zerohedge finally gets “in paradigm”, realizes we need to deficit spend 42 trillion MORE dollars into the economy to get growing.
September 7th, 2012 at 2:24 pm
What I worry about – as always are the revisions – and by that I mean the bias it implies. If anyone is trying to be accurate on predicting any number – shouldn’t your trend over time tend to be an equal number of revisions up and down within a certain standard deviation or bell curve??? I have not done the stats work but my feeling is the down revisions greatly out number the up revisions. Of concern is – this is the same entity that we are trusting to give us the heads up on inflation, which is a lagging indicator anyway??? Any thoughts?
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Ivan Reply:
September 7th, 2012 at 3:42 pm
@Steve Bongardt, The numbers are seasonally adjusted with company birth death adjustments that basically make them worthless. ADP is a far better gauge of private sector employment. Seems that the govt should be able to provide us their numbers quite easily. We don’t need seasonal adjustments. We can figure it out.
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ESM Reply:
September 7th, 2012 at 11:57 pm
@Ivan,
Haven’t checked this to make sure, but I read recently that the seasonal adjustment for August is zero, or at least it was last year.
I think the payroll number is basically worthless anyway. I think the household survey is much, much better, although the market doesn’t agree.
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September 8th, 2012 at 12:43 pm
Interesting stats, thanks Karim!
http://symmetrycapital.net/index.php/blog/2012/09/heck-of-a-soft-patch-but-recovery-still-intact/
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September 10th, 2012 at 10:18 am
Thanks, @Ivan. So that is the only thing that goes into the adjustment? I had no idea – thought maybe the numbers get clearer because of better or updated data but that was just the naive side of me. So if updated information has the number of companies increasing, the number goes up and conversely if the number of companies goes down it goes down.
Seems like not a lot of utility there. @ESM – I was wondering about all adjustments, not just August.
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