By the time you read this, the big news is likely to be jobs. It hasn’t been a hot topic since the election, and most of what was said during that strange period wasn’t exactly true. The big job gains for February, along with a large round-up for January, make it impossible to ignore.
The economy has definitely turned around.
It’s all over but the shouting, of which there will be a lot. There is little doubt that Republicans will claim credit for a big turnaround in 2017, which will be utter crap. This has been a long time in the making and things have not been actually bad for a long time. Nevermind. Positive news will feed on itself and everyone will be happier.
But there is one final twist to the very good news – it’s really in the adjustment.
This is a critical week in the Presidential election. No, that’s not because of the Vice Presidential debate, which will start right after this is posted. You can decide for your self just how important it is and then revise your estimate downward a week later. Don’t worry, we live in a time of negative interest rates so there is indeed a lower standard of importance than whatever you are thinking.
No, this is the week for the final jobs report. Not the last one before the election – that comes out the Friday before. That will be too close to the election to really sink in, so this is the last one that we can be sure will count. Will it be good and favor Obama III: The coming of Hillary? Or will it be a disaster and herald the arrival of, well, a much worse disaster named Trump?
Bet on a solid 180k gain that will seem decent enough to be called a win. But you never know with these reports. Here’s why.
Last Friday the monthly Bureau of Labor Statistics (BLS) Employment Report came out, and it was lousy. Instead of an expected gain of 200k jobs it came in at 142k – a miss of 58k or 29%. The reaction in the financial press was swift and conclusive – there is no way the Fed can raise interest rates given this weakness. But there’s a bigger problem with the report than that.
It honestly can’t be believed.
It’s fashionable to say that the BLS cooks these reports to get the results they want and that no one should believe the government reports in general. That’s a general paranoid delusion that is utterly unreasonable all around. But the reports can’t be taken as pure gospel when they don’t come in exactly where they should be because there is no way they can possibly be as accurate as is demanded.
With so much economic data showered on us every month, about the last thing anyone needs is another number. It’s hard enough to keep track of what’s going on as it is, so more measures of the economy are not helpful. That is, they aren’t helpful unless they give us a particular insight that can’t be gained anywhere else.
This is probably why the more comprehensive U6 unemployment hasn’t caught on against the headline U3 unemployment figure, despite the latter’s obvious deficiencies. Two numbers causes confusion, one gives us clarity. Still, with the changes that are taking place in the economy and the slowness of the recovery, it’s worth taking at least a passing glance at anything that might help us understand where things are going in the future. More to the point, with wonderful tools provided by the St Louis Federal Reserve we can run a lot of custom charts to see what makes sense.
Let’s give it a go.
According to ADP, the largest payroll processer in the US, the total number of private sector jobs made up the net loss in the last official recession last month. In January 2008 the total number of jobs stood at 116.0 million in January 2008, falling to 107.2 million by February 2010. The net loss of 8.8 million jobs was finally regained in March 2014 when we hit 116.1 million total. That includes 491 thousand gained so far in 2014.
If that’s not a good reason for a party, what is?
The stock market has been up so far in September, a somewhat unusual event for the weakest month in stocks. The optimism is propelled largely by decent news on jobs, with weekly initial unemployment claims dropping to their lowest level since 2008 at 323k. But the big news was the ADP Employment Report, which came in at 176k jobs gained in August. Investors are still watching for the official Bureau of Labor Statistics (BLS) report on Friday – but they don’t need to.
What is this ADP Employment Report, and what does it mean? It’s actually the best barometer of where we are, if not the official one, and it comes with a lot of useful information that can’t be found anywhere else. Since we’ve dissected the official BLS report it’s time to take a good look at the ADP numbers – and why they are in many ways much more interesting.
The news was electrifying just one month before the election. Unemployment rate down to 7.8%! Decent gains in employment all around! After an August report so dismal it spurred the Fed into action with an open-ended round of mortgage buying, QE3, how could September’s come in so strong?
The answer is obvious to longtime readers of Barataria, since it was called when the August report came out. We’re seeing fluctuations caused by sketchy methods of calculating the state of jobs, a small number found by subtracting a big number from another big number. Indeed, the best part of the gain came from adjusting July and August up by 89k jobs total.
Underneath the big story is a much bigger story that is going unreported through this gradual turnaround. We are witnessing the printing of a strong bottom, a floor in the overall employment picture where we are roughly treading water. What makes this possible, and hard to report, is the net gain of jobs in unexpected places that the traditional survey is having a lot of trouble finding.