my day (very skippable)
I was out taking photographs early this morning. While I was waiting (in vain, as it turns out) for a decisive moment to show itself, I was also rehearsing the form this post would take.
I expected the monthly Employment Situation report to say that the economy had gained, say, +250,000 jobs. I’d remark that lots of recent anecdotal evidence supported the idea that business confidence was increasing and that the economic growth was beginning to accelerate a bit. I’d point out that the figures were presaged by Wednesday’s ADP employment report of a gain last month of +238,000 jobs. ADP’s is a quirky survey, it’s true, but on the money for once. And I’d observe that the present trend represented a monthly jobs gain of about +100,000 over the number needed to absorb new workforce entrants. Assuming continuation of this trend for the rest of the year, well over a million workers who lost their jobs during the Great Recession and haven’t been able to find work since would be gainfully employed again. That’s a really big deal.
S&P futures were up by 7.5 points in anticipation of a strong ES report. The only short-term investment question would be if, and by how much, futures would rise once the ES was published.
the Employment Eituation report
Well, the actual ES report was bad–very bad. Bad enough, in fact, that I think the market will dismiss the figures as being a case of seasonal adjustment gone rogue.
a tale of two surveys
According to the establishment survey, the part that generates the job gains and losses, the economy added +74,000 positions in December. That’s only a third of the job gains in November. It’s also less than half the number of jobs the economy added on average per month over each of the past two years.
For what it’s worth, the private sector gained +87,000 positions; government declined by -13,000. Other than retail trade and temporary help, weakness was across the board. Revisions to past months’ figures were positive, but not close to the magnitude of the December shortfall: October unchanged, November +38,000.
According to the household survey, the part of the ES that produces the unemployment rate, that fell from 7.0% to 6.7%. Of the improvement, a third comes from more people having jobs, the other two-thirds from people (mostly men) dropping out of the workforce. A good number, but a bad reason for it.
It will be interesting to see how Wall Street reacts as equity trading unfolds today. As I mentioned above, I think investors will ignore the report.
The reaction of the futures to the ES report suggests that the perverse, bond-oriented idea that economic weakness postpones interest rate rises and is therefore good news has passed its use-by date.
The 6.7% unemployment rate is very close to the 6.5% figure that the Fed set as a necessary condition for beginning to withdraw extra money stimulus (remember that “tapering” is just adding extra stimulus, but at a slower rate than before). But I don’t see any bond market reaction so far.
If I’m correct, next month’s ES assumes greater importance, since the market will likely expect substantial upward revision to the December figures.