Employment Situation Report - January 2010

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Employment Situation Report

There is good reason why this report is being published at the hour it is. The freshly released Employment Situation Report for January 2010 was the most complicated to dissect in recent times.

Last evening, I was asked an important question by a sharp reporter. It just so happened that my key points were exactly aligned with his question, which is here paraphrased:

• What significance does Thursday's Weekly Initial Jobless Claims Report have with regard to the market potency of January's Employment Situation Report?
  
  
  • These were my unedited prepared notes for the interview before I knew what he would ask. They still hold true post-release: Employment Situation Report rendered mute by Thursday's initial jobless claims that worked back up to 480K. Combine that with low consensus expectations for January nonfarm payroll loss, and relatively good data tomorrow should be muted. Perhaps a positive number might lift the market to start, if that occurs, but it is not expected. A light loss of nonfarm payrolls (what we got) should only allow the current trend to continue (meaning the current downward market trend).

Nonfarm payrolls were reported down only modestly, at -20K, and the Dow Jones Industrial Average started the day higher as we said it might, before meandering lower throughout the day. The Dow closed up only fractionally, having already bought (sold actually) into Weekly Claims indicators.

Realizing that you could use this kind of knowledge ahead of the news, we are making some changes around here... No, don't worry, we're not firing Odi, my personal secretary who doubles as my dog. We remind you that you can always find economic reports posted seconds after the hour of their publishing within the sidebar of Wall Street Greek, under "Business News." Our thoughtful commentary regularly follows, and look for our pre-market report staples, "Wake Up Call" and "Morning Coffee" to return shortly (how's Monday?). However, note also that we will begin publishing short notes like the one seen above on our twitter page (which is also viewable in our sidebar - so what we're saying is, come see us sometime), for those of you who would have liked to have known our prescient thoughts about this report yesterday.

Employment Situation Report - January

The Grandaddy of economic reports hit the wire this morning. The employment situation is improving, based on the surface data points published, but you can count on us to add value as we break the data fine points up for easier swallowing. This was a tricky month, with annual benchmark revisions making a mess of the past year, and with increasing masses of long-term unemployed deceptively skewing the unemployment rate for the better. Yes, for the better!

Nonfarm Payrolls

The employment report showed Nonfarm Payrolls declined by 20,000 jobs in January. The reading was worse than economists had expected, with the consensus forecast set at no change, according to Bloomberg (+13K by Barron's take). Still, the investment community was not going to be bothered by a few thousand jobs here or there around the break-even mark. No they were not; not after having taken their medicine Thursday, and last Thursday too, with weekly claims bleeding away.

What was more concerning was the annual benchmark revisions to payrolls. We also warned the reporter last night about those. From our interview notes: "Benchmark revisions threaten to show lower prior month totals, souring the whole deal. Since employment at newly formed firms is often overestimated in times of recession." We figured the old birth/death rate adjustment would be unraveled by the benchmark revisions, and oh boy was it. As it turns out, every single month of 2009 was revised lower, except that anomaly of a period in November.

A net understatement of -617K nonfarm payrolls was quietly erased away little by little on a monthly basis last year; but it shows up now, coincidentally, just when it does the least damage. The fact is that from the jobs peak in December 2007 through December 2009, job loss was underestimated by 1.16 million (we let Bloomberg do the math on this one for you). So, through that two-year horror of a span, the American economy shed 8.4 million jobs, and another 20K last month.

As you might imagine, this is not good news, and it paints an image of the deep hole we must dig ourselves out of. If not for that anomalous month of November and a bunch of anecdotal evidence of change ahead, the market might have shed another three points Friday. The reason for that is because there is little faith in January's payroll count. How could there be when the last two weeks of initial unemployment benefits claims numbered 472K and 480K? And then you go and tell us you made a tiny little accounting mistake last year. What kind of fools do you take us for Uncle Sammy?

Early January may have offered employment solace thanks to the few kind hearts that still inhabit corporate captain's chairs, but the last few weeks have revealed something else. There is still a bunch more capacity available to be filled before companies are going to be willing to relieve the workloads of the poor folks carrying the heavy load of a job and a half (of two years ago). If you are working a job in the private sector, you know what I'm talking about. Guess what though public sector people, wipe that smug smile off your face! If you have a job working for the city, or the county or state, well you outta consider a relaxing vacation this year, and if you are lucky enough to get it, plan it for sometime in the first half.

That's because that outside of the 1.1 million temporary census takers being hired to count America over the next few months, there's more firing planned than hiring. "Wait a second, wait a second Greek, what about Obama's plan?" I hear you, but Obama is cutting government waste as well as corporate bonuses, and there are a lot of saggy bee-hinds clocking those federal hours you know. Note to the President up in the Oval: I don't think you should fire anybody Bama baby. Why not make a statement, and move those people into other government positions. Then we can just not replace the extra folks as they retire, like Greece is being forced to do by Brussels. Actually Greece raised the retirement age at the same time, since a lot more people work outside of government than within it. Anyway, let's keep those people working, because they deserve a bailout too.

States and municipalities are under a ton of pressure this year to meet their newly slammed income levels. That means fire stations are closing, like some 27 or so in New York City, and police officers and a lot of folks are receiving pink slips. And guess what, others will be working double shifts or covering broader spans of space; so here's a suggestion for the wise: you've got yet another reason to stop smoking fool! Do it before you set your house on fire, because ain't nobody coming to put it out! Not me though, I'll keep smoking my (insert sponsor name here- THAT'S YOU!) cigars through cancer, cause I'm Kool like that.

Back to Point

There was a point here yes... Nonfarm Payrolls that come in close to neutral are somewhat meaningless when the last two weeks of regular, fresh and trustworthy jobs data (cause it's based on people filing papers for unemployment benefits, not birth/death model adjustments) show the rate of job loss seems to be revving back up again. The market has been alerted to the fact that while inventory restocking has driven blowout GDP figures, employers are still tentative about doing any new hiring.

THIS IS WHY YOU READ ME!

Birth/Death Rate Adjustment Debacle

Have you ever noticed that talking heads on the TV are saying something familiar to you? Have you ever had that moment, like deja vu, when you realized that you had read it already on "The Greek" a long time before? I have. You should enjoy this advantage for as long as you can my dearest of friends, before the pop masses take note of our "ugly on the outside, rich and wonderful on the inside" little blog. Are we really ugly?

By the way peeps, we want to replace our rudimentary banner (yes we knew it) atop these pages. Send your suggestions and even art work if you like. We are aiming for more business and less Greek. We want people to know what we really do here before their compulsive little index fingers take them away because they think I'm talking about the Acropolis or ouzo (well we do a little bit of that here too). Send your ideas to greek @wallstreetgreek.com, and thank you.

Anyway, when you see some thug on TV saying this later on, please please please let the editor of that publication or TV program know that it existed on these secret pages long before.

Listen carefully now... cause this here's the gold...

The birth/death rate adjustment may make perfect sense in a static environment of average economic growth (like those that strategists sometimes forget we do not live within), but the model is useless in dynamic, steeply sloped phases of the economic cycle like the one we just slid down. While people are still dying and octoplets are still being synthetically generated, individuals coming of age are not getting jobs (on net) like the model attempts to adjust for. That's why the model itself needs to be adjusted to flow dynamically up and down the dynamic slopes of the economic cycle!!! Remember those words, PLEASE.

Let's move on to my next pet peeve with the Employment Situation Report

Unemployment Rate

So (sigh), the government means to tell us that, hurray hurrah, unemployment improved in January to 9.7%, from the 10% rate of joblessness seen in December. Do they? Do they really? This is just a travesty... At the very least it's suspect, right? What do you think?

Explain to me how nonfarm payrolls decrease on net (numerator increases), people fall out of the workforce due to long-term unemployment (denominator decreases), and the result is a smaller number. Please!!! Well, let's take a stab at this one shall we...

Our argument is flawed. According to the government, the number of unemployed declined in January and the workforce actually increased. What? We can explain the denominator difference easily enough. Our dear friend the birth/death rate increases the workforce (denominator increases) and voila! As for the numerator, it's perplexing. It must have something to do with the sources of the data, and perhaps variation between the Establishment and Household Surveys.

Now let's see how underemployment looks; that's the figure that includes part-timers, who once worked full-time, in the unemployed count. This adjustment also adds back "discouraged" and marginally attached workers, who are not counted as part of the workforce or unemployed. If we add back the 2.5 million displaced workers to the labor market, and include the 8.3 million underemployed part-timers in the unemployed count, adjusted unemployment reaches ((14.8M + 2.5M + 8.3M) / (153.17M + 2.5M)) * 100 = 16.4%. Guess what - that's a full point lower than the same measure taken in December. How do you get that?

What's suspect is that the size of the labor force increased some. Also, displaced workers did not increase, where it seems they should have, because we know that the number of people unemployed for 27 weeks or more increased. So then perhaps some people simply disappeared off the radar screen, and that 2.5 million figure should be adjusted higher.

If we trusted the data, we might note the number of part-timers dropped sharply and the number of unemployed dropped as well. If we were to search for possible and real positive factors behind the ratio's change, we might say that folks who had their hours reduced in manufacturing and other work (reduced all the way to part-time status), are perhaps getting them back as inventory restocking drives the economy. Otherwise, maybe they all started successful blogs...

In any event, 16.4% underemployment is quite simply a lot of struggling Americans no matter how you look at it. I want to note that there are a lot of folks who are not receiving unemployment benefits. You see, as we have written in the past, you do not qualify for extended benefits if you had the poor luck of losing your job just before the government's deadline. Suppose you fit in this group, but are actively seeking work now. With the environment so difficult, wouldn't you agree that these folks deserve some help alongside the others? Call your Congressman and let them know. These people are struggling.

One other note: We are building a Wall Street Jobs website, that is still far from finished, and is planned to be completely redone as well. However, if you are looking for work, you might want to bookmark it. We will be placing serious financial markets positions from important executive search firms on the page. You can bookmark it by clicking on the banner below, and remember, it's going to be completely redone. Also, see our work on December's Employment Situation Report via the link here.


Editor's Note: This article should interest investors in Robert Half International (NYSE: RHI), Korn Ferry (NYSE: KFY), Manpower (NYSE: MAN), Monster World Wide (NYSE: MWW), General Employment Enterprises (NYSE: JOB), Global Employment Holdings (OTC: GEYH.PK), Career Education (Nasdaq: CECO), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Citigroup (NYSE: C), J.P. Morgan Chase (NYSE: JPM), Bank of American (NYSE: BAC), Northern Trust (Nasdaq: NTRS), Wilmington Trust (NYSE: WL) and 51job Inc. (Nasdaq: JOBS), UBS (NYSE: UBS), Credit Suisse (NYSE: CS), Deutsche Bank (NYSE: DB), PNC Financial (NYSE: PNC).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.