Tag Archives: Payrolls

News recap comments

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The news flow from last week was so voluminous it was nearly impossible to process. For good measure I want to start today’s commentary with a simple recap of what happened.

On the negative side –

· Greece called a referendum and threw bailout plans up in the air taking Greek 2yrs from 70% to 90% or +2000bps.
· Italian 10yr debt collapsed 40bps with spreads to Germany out 70bps. The moves were far larger in the 2yr sector.
· France 10y debt widened 25bps to Germany. At one point spreads were almost 40 wider.
· Italian PMI and Spanish employment data were miserable.
· German factory orders plunged 4.3 percent on the month.
· The planned EFSF bond for 3bio was pulled.
· Itraxx financials were +34 while subs were +45.
· Draghi predicted a recession for Europe along with disinflation.
· The G20 was flop – there was no agreement on IMF involvement in Europe.
· The US super committee deadline is 17 days away with no clear agreement.
· The 8th largest US bankruptcy in history took place.
· US 10yr and 30yr rallied 28bps, Spoos were -2.5%, the Dax was -6% and EURUSD was -3%.
· German CDS was up 16bps on the week.

On the positive side –

· The Fed showed its hand with tightening dissents now gone and an easing dissent in place.

Too bad what they call ‘easing’ at best has been shown to do nothing.

· The Fed’s significant downside risk language remained intact.

Downside risks sound like bad news to me.

· In the press conference Ben teed up QE3 in MBS space.

Which at best have been shown to do little or nothing for the macro economy.

· US payrolls, claims, vehicle sales and productivity came in better than expected.

And the real output gap if anything widened.

· S&P earnings are coming in at +18% y/y with implied corporate profits at +23 percent q/q a.r.

Reinforces the notion that it’s a good for stocks, bad for people economy.

· Mortgage speeds were much faster than expectations suggesting some easing refi pressures.

And savers holding those securities saw their incomes cut faster than expected.

· The ECB cut 25bps and indicated a dovish forward looking stance.

Which reduced euro interest income for the non govt sectors

· CME Margins were reduced.

Just means volatility was down some.

· There was a massive USDJPY intervention which may be a precursor to a Swiss style Japanese policy easing.

Which, for the US, means reduced costs of imports from Japan, which works against US exports, which should be a good thing for the US as it means for the size govt we have, taxes could be lowered to sustain demand, but becomes a bad thing as our leadership believes the US Federal deficit to be too large and so instead we get higher unemployment.

· The Swiss have indicated they want an even weaker CHF – possibly EURCHF 1.40.

When this makes a list of ‘positives’ you know the positives are pretty sorry

· The Aussies cut rates 25bps

Cutting net interest income for the economy.

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Payrolls and a Fed rant

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Utter failure of policy.

The Fed was certain it knew what Japan had done wrong and wasn’t going to make THOSE mistakes.

So it

Cut rates much more aggressively.

Said it would do whatever it takes.

Figured out how to do its job as liquidity provider after only 6 months of alphabet soup programs.

Did heaps of Quantitative Easing.

Did the twist.

And now, realizing its done about all it can do, says monetary policy can’t do it all.

And still fails to recognize publicly the actual problem is the budget deficit is way too small.

And doesn’t directly inform Congress that

there is no such thing as a solvency problem,

the Fed controls government interest rates, and not the market,

there is no long term deficit problem with regards to finance,

the only thing we owe China is a bank statement,

Quantitative Easing and rate cuts remove interest income from the economy, which allows the deficit to be that much larger,

etc.

as we continue to go the way of Japan.


Karim writes:

Some improvement around the edges but the larger narrative is employment rising only at a rate fast enough to keep the unemployment rate stable (not higher or lower)

  • NFP 80k with net revisions 102k
  • Unemp rate down to 9% from 9.1%
  • Average hourly earnings 0.2% and aggregate hours 0.1% barely ok for labor income once adjusted for inflation
  • Weather may have played a small role as construction employment turned from +27k to -20k
  • Diffusion index improved from 56.7 to 60.7; while encouraging in that the majority of industries are adding jobs, doesn’t say or mean they are necessarily adding jobs at an increasing rate
  • Other positives are median duration of unemployment falling from 22.2 weeks to 20.8 weeks and U6 measure falling from 16.5% to 16.2%
  • Don’t think this would have a big impact on the new Fed forecasts we saw the other day

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Payrolls/ISM

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Karim writes:

Pretty bad payroll number that is likely to be enough to swing the Fed into action-at least Operation Twist, if not QE3

  • Payrolls unch for August, though Verizon strike impact was 45k
  • Net revisions -58k
  • Unemployment rate unch at 9.1% on account of 331k gain in household survey (prior 2mths total -483k) and 366k gain in labor force
  • Average hourly earnings -0.1% (0.5% prior mth)
  • Index of aggregate hours -0.2%
  • Manufacturing -3k from +36k
  • Retail -8k from +26k
  • Median duration of unemployment 21.8 weeks from 21.2
  • U6 measure 16.2% from 16.1%
  • Diffusion index 52.2 from 57.7

ISM yesterday showed production below 50, with other components holding up better. Anecdotes also show mixed results.
Possible that August was a temporary downturn, but Fed unlikely to take a chance on that and sit idle.

WHAT RESPONDENTS ARE SAYING…
“Earlier chemical price increases are beginning to soften.” (Chemical Products)

“Business is soft, confidence is down, and we are cutting inventory and expenses.” (Machinery)

“Exports continue to be strong — domestic weak.” (Computer & Electronic Products)

“Domestic sales are showing small improvements. International sales are showing larger improvements.” (Fabricated Metal Products)

“Demand remains constant and strong.” (Paper Products)

“Current headwinds in the national and international economic environment have increased uncertainty, and are affecting our customers’ willingness to commit to high-dollar equipment purchases.” (Transportation Equipment)

“We continue to post solid numbers, but the situation seems tenuous.” (Plastics & Rubber Products)

“Automotive business (represents 52 percent of our sales portfolio) continues to be strong. Core business has pulled back slightly.” (Apparel, Leather & Allied Products)

“Sales continue to be sluggish.” (Furniture & Related Products)

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Goldman excerpts from employment report

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The positives have been well publicized, so I’m just forwarding the negatives, particularly the downward revisions to Q2 I’ve been concerned about:

2. Results from the household survey were disappointing. Total household employment fell by 190k, and the unemployment rate rose to 9.0% (8.96% unrounded) from 8.8% previously. . Results were somewhat better after adjusting for methodological consistency with the nonfarm payroll data; on this basis the household survey measure of employment would have increased by 50k. However, the labor force participation rate was unchanged during the month, indicating that the rise in the unemployment rate reflected job losses rather than an influx of persons into the labor force. While the news was discouraging, it follows four months of declining unemployment, and the level of the unemployment rate remains down 1.1 percentage points from its peak. The employment-to-population ratio fell slightly to 58.4% from 58.5% previously.

4. After the Employment Report, our Current Activity Indicator (CAI) showed growth of 2.3% in April, down from 4.0% in March. The deceleration mostly reflects weaker survey-based data (e.g. the non-manufacturing ISM and Philly reports), and indicates a cooling in overall growth early in Q2.

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US total payroll employees haven’t grown since 1999

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>   
>   (email exchange)
>   
>   On Tue, May 4, 2010 at 10:24 AM, Scott wrote:
>   
>   Ugly chart.
>   
>   US total payroll employees haven’t grown since 1999
>   

Yes, hangover from the surplus years.

Deficits never have gotten high enough to restore demand/employment/output

In the 1990’s private sector deficits (increasing private sector borrowings) did the heavy lifting.

That proved unsustainable and govt has yet to make the necessary fiscal adjustment to remove the drag of over taxation/under spending.

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Payrolls

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Karim writes:

Not hugely out of line with other recent data but details generally weak all around

  • -85k nfp; net revisions -1k (though November now reported at +4k)
  • Weakness led by construction (-27k to -53k; weather?) and govt (-4k to -21k)
  • Avg hourly earnings +0.2%
  • Hours worked unch
  • Unemp rate 9.979% to 9.975%
  • U6 unemp rate (discouraged workers, etc) 17.2% to 17.3%
  • Participation rate 64.9% to 64.6%
  • Median duration of unemp 20.2 weeks to 20.5 weeks
  • Diffusion index 42.4 to 40.0


Agreed.

Both of the Fed’s dual mandates continue moving against a rate hike.

The Fed’s forecasts call for ‘improvements’ but with high downside risks.

From Goldman:

The household survey was substantially weaker than the payroll survey. Although the unemployment rate held steady at 10.0% (9.975% before rounding), the overall levels of the labor force and employment were down significantly — 661k and 589k, respectively. Over the past year, the labor force has fallen 1%; at 64.6% the labor force participation rate is at its lowest level in almost 25 years (August 1985). While some of this may be demographic, at least some of the sharp drop in pariticipation is apt to reverse in coming months, raising the bar for the job growth needed to keep unemployment from rising.

4. Hours worked were flat in December, concluding a quarter in which this index fell 0.5% at an annual rate. This is a much better performance than in recent quarters, and is consistent with expectations that real GDP will post a significant increase for the fourth quarter. We estimate at 4% annualized increase in real GDP for Q4 with upside risk.

5. Although average hourly earnings rose a bit more than we expected on the month, the trend in wages — at 2.2% — continues to drift lower, consistent with the high level of unemployment. The “U6” broad measure of underemployment, which includes marginally attached workers (those who have stopped working and are consequently not counted as part of the labor force) and those working part time who would like full time work — rose 0.1 point to 17.3%.


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NFP

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Karim writes:

Strong number; details mostly firm:

  • NFP -11k with net revisions +159k
  • UE rate down from 10.196% to 9.992%
  • Diffusion index up from 32.5 to 40.6
  • Hours index up 0.6%
  • U6 unemployment down from 17.5% to 17.2%

Sectors:

  • Construction -56k to -27k
  • Retail -44k to -15k
  • Temp 44k to 52k
  • Leisure/hospitality -36k to -11k

Main weak spots were average hourly earnings at 0.1% and median duration of unemployment up from 18.7 weeks to 20.1 weeks

No question a strong report (should actually still say less bad as any decline in jobs is still bad). If payrolls and claims maintain recent improvement through current period of seasonal adjustment questions (and confirmed by other labor market metrics like ISM employment series, Conf Board surveys,etc), could see Fed drop the ‘2 Es’ earlier than previously thought (perhaps as soon as March meeting).


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Payrolls

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Karim writes:

  • -533k in payrolls, and downward revisions of -199k to prior 2 mths
  • Unemployment rate rises ‘only’ to 6.7% from 6.5% because 422k left the labor force
  • The 2 real shockers are:
    • Index of hours fell 0.9% for the month (after -0.4% prior mth); even adjusting for some productivity gwth, looks like real GDP in Q4 may be more like -7 to -8% vs the most recent range of estimates of -4 to -5%.
    • Diffusion index plunges from 37.8 to 27.6; support for job gwth increasingly narrow.
  • By sector
    • Mfg -85k
    • Construction -82k
    • Retail -91k
    • Finance -32k
    • Temp help -78k
    • Hospitality -76k
    • Education +52k
    • Govt +7k


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Re: State payrolls suggest a downward revision to April

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(an email exchange)

>
> the sum of state payrolls just came out for April showing -151k jobs, vs
> the actual prelim rleease earlier this mth of -20k. hints at a potentially
> large downward revision to April payrolls when the May data is released.
>

Thanks!

Plenty of export driven banana republics out there with high unemployment, low wages, falling currencies, high inflation, and high interest rates. Looking like we’re next…


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ABC Buying Climate Index

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Yes, one more data point indicating we hit the wall right around year end.

(ISM, car sales, payrolls, redbook sales)

Maybe the stock market scared consumers? Cliff is convinced stock market drops cause consumer retrenchment and recessions. Can’t say I disagree with something like 75% of Americans now holding shares.

But something did change and very quickly. .

comments welcome!

2008-02-05 ABC Buying Climate Index

♥

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