As most news headlines have pointed out; the U.S. jobless rate down is down from 10,0% to 9.7%, the employment ratio up to 58.4% from 58.2%, and even the broad U6 measure of the unemployment rate slipped to a five-month low of 16.5% from 18.3%. So, what can we make of this? Chief economist David Rosenberg helps us out.
“The working-age population in the U.S. plunged 92k in January; such a decline has occurred but five times since 1951.”
“To put the -20k headline payroll result into perspective, history shows us that what is normal is that fully 24 months after a recession begins we are printing employment gains of 100k. In other words, labour market conditions can still be described as being somewhat abnormal and fundamentally soft even if the pace of deterioration has abated,” Mr. Rosenberg at Gluskin Sheff writes in a note to their clients.
In the overall scheme of things, considering the intense fiscal problems in Euroland, the prospect of sovereign debt defaults and the future of the regional monetary union, today’s U.S. payroll report is really a secondary event, David Rosenberg points out.
The headline payroll result was below expected at -20k (consensus was +20k) and there were downward revisions of 930k to the back data (April 2008 to March 2009) from the much-anticipated benchmark revisions.
“To put the -20k headline payroll result into perspective, history shows us that what is normal is that fully 24 months after a recession begins we are printing employment gains of 100k. In other words, labour market conditions can still be described as being somewhat abnormal and fundamentally soft even if the pace of deterioration has abated.”
David Rosenberg says it’s “ludicrous” for the Bureau of Labor Statistics to assume that the economy has been generating net new jobs from business creation.
“As a result of the changes made to the ‘birth-death’ model, we had downward revisions in four of the prior five months (totalling 245k — for example, December was revised to show a 150k loss versus the initial -85k print). Excluding the federal government hiring last month, payrolls would have declined 53k. And, while the diffusion indices for private payrolls and manufacturing did improve, they do remain squarely below 50, which suggests that the plurality of employers are still in the process of shedding labour, more than two years after the recession officially began.”
The report shows that the the workweek rose an aggregated 0,3% to 33.3 hours in January from 33.2 hours.
Annual weekly earnings jumped 0,6%.
“The Household survey did show a nice rebound of 541k in January and almost half the gains were in full-time positions. Not only that, but the number of folks working part-time for economic reasons plummeted 849k, or by nearly 10% — talk about an eye-popper.”
“Keep in mind that the January rebound in Household employment fell short of recouping the entire 589k plunge in December and the job count here is still 1.5 million lower today than it was in July. After four months of decline, the labour market rose 111k and together with the rebound in Household employment, all the job market ratios improved.”
Rife With Bad Sampling
“The working-age population plunged 92k in January and such a decline has occurred but five times since 1951 and they most happen in January, so we could well be spending an inordinate amount of time analyzing a report that is rife with bad sampling. For example, we also found that despite the great headline in the Household survey, adult-male employment actually fell 75k and has declined now for 18 months in a row. Moreover, the adult-male unemployment rate yet again was at 10% in January, a level it has either been at or breached for six straight months in unprecedented string dating back to 1947.”
Meanwhile adult-women employment over the age of 20 posted a 529,000 job increace. In the battle of the sexes, Venus clearly took January.
Mr. Rosenberg writes: “Almost 10% of what was once considered the ‘breadwinner’ part of the workforce has been extinguished during this recession. How can anyone realistically be excited about recovery prospects knowing this?”
“Taking a big picture viewpoint, the U.S. labour market remains fundamentally weak. Despite the clarion calls for recovery from the legions of Wall Street economists and strategists, the reality is that labour market gaps remain very wide; here we are more than two years after the recession officially started and the ranks of the long-term unemployed continue to swell.”
The average duration of unemployment rose to a record 30.2 weeks from 29.1 weeks in December; and for the first time ever, we have more than 6.3 million Americans who have been looking for a job with no luck for at least six months.
That is an unprecedented 41.2% share of the pool of unemployment.
While there will be many economists touting today’s U.S. employment report as some inflection point, the reality is that the level of employment today, at 129.5 million, is the exact same level it was in 1999
“While there will be many economists touting today’s report as some inflection point, and it could well be argued that we are entering some sort of healing phase in the jobs market just by mere virtue of inertia, the reality is that the level of employment today, at 129.5 million, is the exact same level it was in 1999. And, during this 11-year span of Japanese-like labour market stagnation, the working-age population has risen 29 million. Contemplate that for a moment; fully 29 million more people competing for the same number of jobs that existed more than a decade ago. That sounds like pretty deflationary stuff from our standpoint.”
A Technically-driven Market
On the current market conditions, David Rosenberg notes the following:
“Yesterday’s sharp and broadly based decline in the equity markets was the worst session since April 20 of last year. Fast Money came on the tube and it was almost laughable to see them all grappling for the reasons why the selloff occurred. China here. Greece there. No, sorry. Remember Bob Farrell’s eleventh rule: “it’s the market that makes the news; not the other way around.”
“This is a stock market that is as overpriced as it was heading into the October 1987 crash and as the case back then, it wasn’t about the fundamentals but about policy discord between the U.S., Japan and Germany. A market priced for perfection requires perfection on all fronts.”
“The comments on Fast Money were that the fundamentals hadn’t changed — this selloff is pure emotion. Really? We had a 70% rally from the March low in advance of any serious turn in the economic data — this was purely a bear market rally that was rooted in the technicals (and short coverings). How do we know? Because at the January 19 high in the S&P 500 of 1150 it had completed a 50% retracement off the slide from the October 2007 highs to the March 2009 trough.”
The One-eyed Man In The Land of The Blind
According to David Rosenberg the U.S. dollar rally is more a reflection of the problems overseas than anything overly encouraging state-side.
While many others see the charts as a flight-to-safety not unlike what we experienced in late 2008 and early 2009, Rosenberg says it is a “countertrend rally”.
“We are currently seeing a countertrend rally in the U.S. dollar… all of a sudden, the USD looks like the one-eyed man in the land of the blind.”
“But this could last a while longer”, he adds.
“The DXY tested the 90 threshold in the last such up-move nearly a year ago, which would imply another 10% rise from current levels (ie, this countertrend rally may only be 40% of the way done).”
“Countertrend rallies in the U.S. dollar are not generally associated with upward movement in the commodity complex, so expect to see further near-term declines in the resource space. Although the chart of gold against the euro and many other currencies still looks quite constructive.”
U.S. productivity growth came in at a startling 6.2% annual rate in Q4, and this followed a 7.2% spurt in Q3 and a 6.9% runup in Q2.
“At no point in the past five decades has productivity risen so sharply over a three-quarter period — up at a 6.7% annual rate. And, look at the pattern since the third quarter of 2008: -0.1%; +0.8%; +0.3%; and then all of a sudden +6.9%; +7.2%; and +6.2%. Somehow, with no capital deepening during the 2002-07 expansion and no innovation to speak of (sorry, but iPhones don’t cut it), we are seeing a productivity burst that is almost without precedent.”
“Despite the loss of 452,000 jobs in the final quarter of the year, output in the nonfarm business sector exploded at a 7.2% annual rate. This is indeed the Houdini recovery. And with the downward revisions to employment, these productivity numbers are likely to show double-digit gains and make a mockery of the advances we saw during the tech revolution of the 1990s. Catch my drift — GDP growth is dramatically overstated and by perhaps as much as three percentage points.“
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