image FMX | Connect – www.fmxconnect.com - (Reported 8/9/2010)

 

 

 

 

 

 

 

 

Excerpt from MARKET MUSINGS & DATA DECIPHERING

SOME SALIENT FACTS ABOUT THE JULY PAYROLL REPORT
Upon second look, last Friday’s U.S. nonfarm payroll report was even weaker than we thought. Consider the following:

  • Forget about private payrolls, which for some reason the markets have been brainwashed into watching (though these did come in well below market expectations, at +71k versus +90k expected) — we should be adding in state/local government employment. Bottom line is that when adjusting for the Census worker effect, the economy only generated 12k net new jobs last month. Pathetic.
  • The Birth-Death adjustment factor tacked in 16k jobs to the seasonally adjusted data, so actually, that 12k number was probably more like -4k. Doubly pathetic.
  • The Household survey showed a 159k loss, which was the third decline in a row — something that in the past occurred outside of recessions a mere 2% of the time. Full-time employment tanked 570k (on top of a 70k falloff in June) which was the steepest decline since the depths of economic and market despair in March 2009.
  • The Household Survey, on a population and payroll concept adjusted basis, posted a decline of 315k and this followed a 363k loss the month before.
    If not for the near one million decline in the labour force since April — the number of discouraged workers has ballooned 50% in the past year — the unemployment rate would be sitting at 10.4% right now (if the participation rate was unchanged from April’s level).
  • As a sign of how far the economy has slowed from its springtime peak, the employment/population ratio dipped from 58.8% in April to 58.7% in May, to 58.5% in June, to 58.4% in July — the lowest it has been since the turn of the year. Moreover, two-thirds of the private sector job creation this year took place in March and April, when the economy was hitting its peak.
  • We had mentioned that one of the bright spots in the data was the pickup on factory payrolls, but again this was more the result of seasonal adjustment wizardry than anything else. Somehow, a 16k drop in the automotive industry in the raw data managed to swing to a +21k print on a seasonally adjusted basis and this likely reflected the one-off lack of plant idling this year at GM.
  • At the rate the economy is creating jobs — 654,000 so far this year — we will not get back to the previous peak in employment until 2017. Just to get back to the 8% unemployment rate that the White House had forecasted we would require job creation of at least 2.5 million. At the rate we are going, that will take longer than two years to accomplish.
  • The workweek did edge up, but it is still an anaemic 34.2 hours and this reflects the ability of businesses to adapt their labour force needs more than anything else. The fact that they chose this route rather than add bodies, and shedding full-time workers, is a sign that companies lack a commitment right now. The fact that they cut their reliance on the temp agency market for the first time in 10 months is another indication that the aggregate demand for labour contracted last month.
  • Let’s not lose sight of the fact that initial jobless claims kicked off the month of August by jumping 19k, to 479k, the highest level since last August. If we see this number back up to over 500k, then for sure we will see less denial over double-dip risks.

 

TAKE MR. BOND VERY SERIOUSLY
The yield on the 10-year note hit its nearby peak on April 5, at 4.01%, and has since plunged nearly 120 basis points.

Declines of this magnitude very often presage the onset of bear markets and recessions. Typically, equities and then economists are late to the game. Nothing we are seeing is any different from the past, at least on this score.

What is key to note is that the bond market is the tail that wags the stock market’s dog — it leads.

The 10-year note yield peaked on May 2, 1990 at 9.09%. By December 12, 1990, the yield was all the way down to 7.91%. The S&P 500 peaked on July 16, 1990, the same month the recession started. So Mr. Bond led both by over two months — the 120 basis point slide in yields by December provided ratification (though there were still some, including Alan Greenspan at the time, who still believed a recession had been averted).

The yield on the 10-year T-note peaked at 6.79% on January 20, 2000 — the stock market peaked less than eight months later on September 1. By November 28, 2000, the yield had plunged to 5.59% — down 120 basis points (as is the case today), again providing ratification that we were not heading into some routine soft patch. Indeed, the recession started in March 2001, so the bond market again played the role of the real leading economic indicator, not the stock market.

Then in the most recent cycle, the 10-year T-note yield reached its high on June 12, 2007 at 5.26% — by November 21, it was all the way down to 4.00%. The S&P 500 peaked on October 9, 2007, three months after the peak in the bond yield. Yet again, a 120 basis point slide was the smoking gun for the economic downturn — it was called the ‘hard landing’ then, though the plethora of economists decided to look the other way; and today it is called the ‘double dip’ and once again this view is met with widespread ridicule from the economics intelligentsia.

 

David A. Rosenberg
Chief Economist & Strategist Economic Commentary
drosenberg@gluskinsheff.com
+ 1 416 681 8919

 

Source: Market Musings & Data Deciphering

 

 

http://www.fmxconnect.com/

-----

About FMX: FMX Connect is an information, data, and analytics portal for Commodities. The portal provides an all-in-one package including essential market data, independent third party research, industry news, and commodity trading tools. FMX Connect provides efficient, effective, and thorough data that bridges all aspects of commodities onto one screen. The Result; A user friendly application for hedge fund traders, OTC brokers, individual investors, and industry participants
-----
Note: The information presented, while from sources generally believed to be reliable, is not guaranteed and may not be complete. FMX | Connect makes no representations or warranties regarding the correctness of any opinions or information. Past results are not necessarily indicative of future results. Nothing in this report should be construed as a representation to buy or sell shares, futures or options, which contain considerable risks. For internal client distribution only. Any reproduction, re-transmission, or distribution of this report without permission is prohibited. Media correspondents or reporters may not quote any one page or section in its entirety and must attribute all quotes, ideas or concepts herein. Copyright FMX | Connect, ©2009-2010. All rights reserved.