The Final Countdown

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.

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Bad Jobs Numbers

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.

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Not Hiring, but not Firing

Where are the jobs? Job creation has been the hot economic topic since the big downturn in 2008. The sooner we have full employment the sooner demand for goods and services will turn around and there will be a net upward pressure on wages. But in 2015 the rate of increase in jobs has slowed somewhat, barely hitting 200k net every month from a solid run of 220k the year before. What happened?

The data is even more confounding when you look at the net good news on jobs – that initial claims for unemployment per week are at an all-time low as a percent of total jobs. We’re not creating jobs as fast as we should, but we also aren’t losing them. Along with a large backlog of unfilled job postings there is substantial evidence that something is wrong. Is it a skills gap? Or something else?

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ADP Employment Report

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.

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What is Employment?

There’s been a lot of good economic news lately, the second year in a row that July uncharacteristically surged ahead.   The “ISM Index” poll of manufacturers looked more positive than it has since 2008, even with a strong US Dollar.  Initial claims for unemployment fell to 326k last week, another low since 2008.  US GDP grew at 1.7% in 2Q13, not exactly great news but far better than expected (and accompanied upward revisions to previous quarters).  The ADP employment report showed a net gain of 200k jobs, the rosiest figure of them all.  Only 82k of those came from small businesses, with large companies gaining a new high of 60k jobs added – meaning that for the first time since 2008 big companies are in a hiring mood.

By the time you read this, the official Bureau of Labor Statistics (BLS) employment report for July should have come out, and it should be roughly in line with the more smooth ADP figure.  Now that we are really turning a corner, as Barataria expected in 2013, it’s time to take an in-depth look at what “employment” means and why there’s still so very far to go.

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Party on the Jobs Report!

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.

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