Economic DIchotomy -- Stocks Soar As Earnings Crash

I couldn't help noticing the contradiction today between stocks, which just went positive for 2016, and both employment and corporate earnings! This is what a bubble looks like!

The Great Jobs Report -- That Isn't

It's a Depression! Labor Force Participation Rate Plunges to 25-Year Low!

from Zero Hedge:

This chart needs no commentary. At 64.1%, the Labor Force Paritipcation rate just dropped to a fresh 25 year low: the civilian labor force declined by 272K from 153,693 to 153,421. And tangentially, the employment to population ratio also slumped to a multi decade low of 58.2%.

Employment Picture "Bleak"

Ouch!

from the National Federation of Independent Business:
WASHINGTON, June 3, 2010 — William C. Dunkelberg, chief economist for the National Federation of Independent Business, the nation’s leading small business organization, issued the following statement on May job numbers based on NFIB’s monthly economic survey that will be released on Tuesday, June 8. The survey was conducted through May 31 and reflects 823 small business owner respondents:

“Since January 2008, the average employment per firm has been negative every month, including May 2010, which yielded a seasonally adjusted loss of negative 0.5 workers per firm. Most firms did not change employment in May, but for those that did, 8 percent increased average employment by 2.4 employees and 20 percent reduced their workforces by an average of 4 employees. Small business job creation has not crossed the 0 line in over 2 years. Government (including healthcare and education) and manufacturing (a large firm activity) are providing what few jobs are created.

“The number of owners with unfilled (hard to fill) openings fell two points to 9 percent of all firms, historically a weak showing.

“Over the next three months, 7 percent plan to reduce employment (unchanged), and 14 percent plan to create new jobs (unchanged), yielding a seasonally adjusted net 1 percent of owners planning to create new jobs, a gain of two points and the first positive reading in 19 months.

“Overall, the job creation picture is still bleak. Poor sales and uncertainty continue to hold back any commitments to growth, hiring or capital spending. Job creation plans have been running far below comparable quarters in the recovery from two other major recessions."

10-Year Treasuries Rise on Employment Concerns

Bloomberg is reporting the following today:

Ten-year Treasuries rose, snapping a two-day decline, on speculation a government report today will show U.S. job losses are mounting.

The bonds climbed in advance of a report that’s expected to show half a million Americans lost their jobs in January, pushing the number of jobless claims to the highest since records began in 1967.

The report “is going to be ugly, so clearly the market is positioning for that, giving us a firmer Treasury market than in the last day or so,” said Olando Green, a fixed-income strategist in London at Calyon, the investment-banking unit of Credit Agricole SA. “Once you get the payrolls out of the way the market will restart focusing on supply, which is a major issue.”

Here is the full Bloomberg story.

10-year treasury futures overnight have been relatively subdued, but the 30-year futures have shown some modest activity.

ADP Unemployment: -522,000 in January

I'm sure glad they consider this to be a lagging indicator! We should keep in mind that the ADP figure includes only private sector employment. Fortunately, January is typically the worst month for job cuts, too, so perhaps the worst may be over. Many companies are reluctant to lay off workers during the Holidays, so they delay job cuts until January. The risk, however, is that one round of lay-offs lead to lower consumption in the macroeconomic perspective, and new rounds of lay-offs in future months in a downward spiral.

Why Government Work Projects Don't Bolster Employment

From Bloomberg:

An hour’s drive through California’s Riverside County takes in neighborhoods of deserted homes, boarded-up businesses, busy unemployment offices -- and crews working on millions of dollars in new public projects.
Only four years ago, Riverside and nearby San Bernardino, often called the Inland Empire, were California’s economic powerhouse, accounting for more than a fifth of the state’s new jobs. Today, unemployment reigns in the sprawling region east of Los Angeles. The 9.5 percent jobless rate in the two counties matches Detroit’s as the highest of any major metropolitan area in the U.S.
Riverside... county illustrates both the promise and the limitations of the spending President-elect Barack Obama proposes to pull the U.S. economy out of a recession that may become the longest since the Great Depression.
“What infrastructure spending can do is bolster employment in a group of industries, like construction, with workers who are ready to go,” said Brad Kemp, director of regional research at Beacon Economics in Los Angeles. “What it can’t do is stop the unemployment rate from rising currently because there are a lot of forces coming at consumers, who are holding back on spending.”

Here is the full story.

ADP Jobs: Down 250,000 in November

The ADP jobs report, a private report issued monthly two days before the BLS report issued by the U.S. government's NFP report, shows that employment declined in the United States by 250,000 during November. Unlike the U.S. government figure, the ADP only includes private sector jobs. It suggests that perhaps Friday's NFP figure may also disappoint to the downside. The figure was a larger drop than expected, and stock index futures are moving somewhat lower as a result. However, despite the lower open, the futures don't appear to me to be powerfully down.

Headline Unemployment As Expected, But...

The internal data are even uglier than anticipated. While the unemployment rate is unchanged (5.5%), and the employment loss is about as expected (-62,000), some of the additional data is much worse. For example, private job losses, especially service sector jobs, are much higher than expected, and are partially offset by government job gains. The new unemployment filings are substantially higher.

Oddly enough, both the Dollar and stock indexes are rallying (at least temporarily), because all this bad news was apparently priced into the market. My gut instinct is that over the next few days, as this news is digested, and market participants realize that this is worse news than the headline, the Dollar and stock indexes will reverse off the immediate response. Perhaps this will happen today!

Misleading Employment Statistics

Here are some excerpts from John Mauldin's newsletter dated 5/2/08. In essence, his newsletter explains in detail why the employment report last Friday was much more disastrous than the headline suggested, once one digs into the numbers. For example, he explains why the unemployment rate fell even thought population increased and jobs were lost:

April, for whatever statistical reason, has shown the highest number of birth/death jobs for any month. In 2007, the BLS estimated that 262,000 were created in April that they could not account for in the survey of businesses. Somehow, the spreadsheets at BLS had them add 267,000 jobs in April of 2008. That number includes an estimated 45,000 new jobs in construction! And this in a time when both residential and commercial construction are contracting. The actual survey results showed that construction jobs fell by 61,000.
And somewhere, they estimate that 8,000 new jobs in finance were created. As Philippa Dunne notes: “It may be that the gains in our old friend, bars and restaurants, are the [birth/death] model's creation; it added 83,000 to the leisure and hospitality sector. With vacation plans at near-record lows, and restaurants reporting reduced traffic, many of these job gains could disappear in the next benchmark revision.”
Without that addition from the birth/death number, total private employment would have dropped by 296,000. Now, if that had been the headline number, the market would have tanked. Now, I have no doubt that the economy did create a lot of new jobs last month. But when the final revisions are in, we will see that job losses were well south of 100,000.

Unemployment supposedly dropped last month by 0.1%, to 5%. How could a loss of jobs mean a rise in employment? Because the statistics mask a rather disturbing trend. The number of people working part-time is rising rapidly, and they are counted as employed. Again, From Philippa Dunne of The Liscio Report:
“Almost 3/4 of the gain in non-agricultural household employment [from the household survey] came from those working part-time for economic reasons, and another 83% came from what used to be called ‘willing' part-timers. Yes, that adds to more than 100% – 154% to be precise – because fulltime employment declined by 375,000. The increase in those working part-time for economic reasons was at the 93rd percentile of all months since the series began in 1955; the decline in fulltime employment was at the 90th percentile.”
This employment report was ugly, when you look at the numbers under the headline statistics. It is no wonder consumer sentiment is down.

There is other frightening stuff in it. Read it in its entirety here:
Front Line Thoughts newsletter

Unemployment Worse Than BLS Number Suggests

From John Mauldin's weekend newsletter. I highly recommend it, especially since it's free!

Payrolls tumbled by 80,000 today, more than forecast and the third monthly decline, the Labor Department said today in Washington. The unemployment rate rose to 5.1%, the highest level since September 2005, from 4.8%. The household survey shows the number of unemployed people rose by 438,000. (That is not a typo!) In March, the number of persons unemployed because they lost jobs increased by 300,000 to 4.2 million. Over the past 12 months, the number of unemployed job losers has increased by 914,000.And of course, when you look into the numbers it is worse than the headlines implies.

Prediction: we will see 6% unemployment before the end of the year.

There were negative revisions totaling 67,000 job losses for the last two months, making those months even worse. This means that the Bureau of Labor Statistics (BLS) is clearly over-estimating the number of jobs in the first announcement. That is because they have to extrapolate based on recent past data. And as I continually point out, as the economy softens, they are going to continue to overestimate the number of jobs. It's one of the problems of using past performance to predict future results.

Job losses since December are now at 286,000 in the private sector and 232,000 overall, counting for growth in government. What was up? Health care (23,000) and bars and restaurants (23,000 also). Initial unemployment claims are up by almost 25% for the last four weeks over last year, and this week were over 400,000. Given the job losses, this is not surprising.

This month the BLS hypothecates 142,000 jobs being created in their birth/death model. You can guarantee this will be revised down. For instance, they assume the creation of 28,000 new construction jobs as the construction industry is imploding. Total construction spending has fallen for the last four months in a row. Somehow they estimate 6,000 new jobs in the finance industries. Does anyone really think we saw a rise in employment in mortgage and investment banks?

Here is a second excerpt and chart:

...the amount of new debt in relationship to GDP is rising. We borrowed in one form or another $5.70 for each $1 rise in GDP last year.

Debt in all forms rose $7.86 trillion for the previous 8 quarters to $48.8 trillion dollars. Nominal GDP was only $14.1 trillion. This is of course unsustainable. At some point, debt growth must slow dramatically. As the world deleverages, decreasing debt and the resultant slowing of consumer spending will become a head wind for GDP growth.

U.S. Jobs -- was it even worse than reported?

I am an eager weekly subscriber to John Mauldin's free newsletter. He has over 1,000,000 weekly subscribers! It is always insightful, often educational, and profoundly helpful in my trading. This week's (released this morning) was also startling. I strongly recommend reading it, especially to stock and stock index traders.

Mauldin explains in detail how the U.S. government arrives at its figures for both the NFP jobs report and for the household survey. He explains why the former is somewhat flawed because it largely ignores small and new businesses, the primary engines for job growth.

What is so startling is that during the month of December, the household survey registered a monumental decline in employment of 436,000 jobs! In one month! I hope I have incited enough interest in my blog readers that you will read the entire article. Find it at this link:

Forecast 2008: Recession and Recovery