The Jobs Report Will Get Revised 7 Times

Sam Ro | Jun. 9, 2013, 8:59 AM | 706 | The most closely followed economic report in the world is arguably the Bureau of Labor Statistics' employment situation report, aka the jobs report.

On Friday, the monthly jobs report told us that U.S. companies added 175,00 new jobs and the unemployment rate ticked up to 7.6%.

Markets move and policymakers mobilize on this report, which contains what amounts to be pretty inaccurate numbers.

In his new US Economics Weekly report, Deutsche Bank's Joe LaVorgna reminds his clients that the jobs report gets revised many times.

Substantial revisions are the norm rather than the exception. The monthly nonfarm payroll figures are revised at least seven times. It happens twice in the two months immediately following the initial release and then once every year during the annual benchmark revision, which extends back five years. This means the final results often look very different from what was initially reported. We have found that the average monthly revision to nonfarm payrolls without respect to sign has historically averaged 90k. Additionally, a one standard deviation move from the initially reported number and the final payroll figure is 113k. These are substantial differences, especially considering the fact that financial markets often react to surprises which are often much smaller relative to the consensus forecast. In the chart below, we show the current change in nonfarm payrolls compared to its initially reported value.

"As a general rule of thumb, payroll revisions tend to be upward during economic recoveries/expansions and downward during economic recessions," added LaVorgna. "Since the economy grows much more often than it declines, revisions on balance are positive."

Deutsche Bank

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If Janet Yellen Becomes The Next Fed Chair, We're All Gonna Have To Start Following The JOLTS Report

Sam Ro | Jun. 8, 2013, 10:30 PM | 968 |

Janet Yellen

Ben Bernanke's term as Chairman of the Federal Reserve ends on January 31, 2014.  While he could stick around for another term, most Fed-watchers think that's unlikely.

They also think the frontrunner to replace Bernanke is fellow dove and current Vice Chair Janet Yellen.

Should that happen, financial market participants and economists may have to start paying attention to a report that usually goes overlooked.

"The BLS’ Job Openings and Labor Market Turnover Survey (JOLTS) data are... released on Tuesday morning, and while we have interest in what these data show, this report has typically not been a marketmoving release either," said Deutsche Bank's Joe LaVorgna. "This could change over time, however, as Fed officials (such as Vice Chair Yellen) have cited such data as an additional source of labor market information."

Head to Calculated Risk for more on JOLTS.

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Cheap Vegetable Prices Keep Chinese Inflation Low And The Door Open For More Stimulus

Sam Ro | Jun. 8, 2013, 11:13 PM | 1,001 | BAML

China's National Bureau of Statistics has released its latest inflation stats, and consumer and producer prices came in cooler than expected.

"The lower than expected CPI in May was mainly driven by an unusually large sequential decline in vegetable prices," note Bank of America Merrill Lynch's Ting Lu.

"Though falling inflation might trigger concerns about weaker-than-expected growth and deflation risk, the low inflation will give policymakers more room to maintain accommodative monetary and fiscal policies."

Lu attributed some of the low inflation to weak external demand as reflected by China's weak export numbers.

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BRIAN BELSKI: Big Investors Aren't Ready For What Could Be Coming Next

Sam Ro | Jun. 9, 2013, 8:07 AM | 5,839 | BMO Capital's Brian Belski has increasingly sounded alarms as the stock market blew past his once-bullish targets.

In his latest note to clients, Belski reiterates his thesis that the big investors are only buying into this rally now because they've been missing out.

He believes this will only make things worse for everyone else should things turn south in a big way.

"[W]e continue to believe that most institutional investors are not prepared for a potential period of market weakness," wrote Belski. "Therefore, we believe investors should prepare for more back-and-forth action this summer -- not just up and not just down -- as the market sifts through what is likely to be choppy fundamental and economic data in the coming months."

Here's more from Belski:

The VIX Index is up almost 5 points since mid-May. We believe one of the primary reasons is that economic data have been increasingly disappointing lately. Our analysis shows that periods of decelerating economic data typically coincide with periods of and higher market volatility, which in turn usually equates to poor stock market performance. For instance, we found that the average annual return of the S&P 500 is significantly weaker during periods of increasing VIX levels, particularly during the period where it increases toward its longerterm average of roughly 20 since 1990.

BMO Capital

"[G]iven all of the above, the market is likely stuck in a frustrated and choppy trading range for at least several more months, unless the economic environment (and job growth in particular) begins to pick up more steam and quick," said Belski. "As a result, investors should continue to employ stock picking strategies relative to more passive or indexing strategies."

Belski continues to have a 1,575 year-end target for the S&P 500.

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Consumers And Housing Are Still Saving The Economy

May monthly data reported this past week was dominated by yet another tepid jobs report of +175,000 with a slight increase in the unemployment rate due to more people entering the labor force. Average hourly earnings barely increased, so real earnings probably fell slightly for the month. The ISM reported that manufacturing contracted slightly, which services expanded at slightly better rate. Auto sales increased slightly for the month, but have been flat over a 6 month period. April factory orders also increased, but have also been flat for a 6 month period. Consumer credit increased. In the rear view mirror, in the first quarter productivity increased, and unit labor costs fell sharply but only partially reversing a huge spike in the fourth quarter due to income being shifted forward into that quarter.

Let's start this week's look at the high frequency weekly indicators by focusing on employment metrics, which have become decidedly mixed:

Employment metrics

American Staffing AssociationIndex 92 down -2 w/w, down -0.5% YoY

Initial jobless claims

  4 week average 352,500 up 5,500

Tax Withholding

$147.5 B for the last 20 reporting days vs. $138.8 B last year, up $8.7 B or +6.3%

In the last month, the ASA has deteriorated to being negative compared with last year, and had its worst comparison yet this week. After having a great 20-day comparison last week, this week tax withholding had its worst YoY comparison in several months. Initial claims remain within their recent range of between 325,000 to 375,000.

Transport

Railroad transport from the AAR

-3300 or -2.0% carloads ex-coal+5800 or +3.7% intermodal units+12,000 or +2.5% YoY total loads

Shipping transport

Rail transport has had four negative weeks in the last several months, but this week was positive.  The Harpex index has flattened after improving slowly from its January 1 low of 352. The Baltic Dry Index remains above its recent low.

Consumer spending

Gallup's YoY comparisons remain extremely positive, as they have been for the last half a year.  The ICSC varied between +1.5% and +4.5% YoY in 2012, while Johnson Redbook was generally below +3%. This week both were in the upper part of those ranges.

Housing metrics

Housing prices

Housing prices bottomed at the end of November 2011 on Housing Tracker, and averaged an increase of +2.0% to +2.5% YoY during 2012. This weeks's YoY increase made a new 6 year record.

Real estate loans, from the FRB H8 report:

Loans turned up at the end of 2011 and averaged about 1% gains YoY through most of 2012.  In the last several months the comparisons have completely stalled.

Mortgage applications from the Mortgage Bankers Association:

+14% YoY purchase applications-15% w/w refinance applications

Refinancing applications had their worst week in almost 6 months, due to higher interest rates, but purchase applications continue their slightly rising trend established earlier this year.

Interest rates and credit spreads

 4.90% BAA corporate bonds up +0.12%2.14% 10 year treasury bonds up +0.15%2.76% credit spread between corporates and treasuries down -.03%

Interest rates for corporate bonds, although rising strongly in the last month, have generally been falling since being just above 6% two years ago in January 2011, hitting a low of 4.46% in November 2012. On the other hand, Treasuries have returned in the last three weeks to their 2% high established in late 2011, compared with their low of 1.47% in July 2012. Spreads have varied between a high over 3.4% in June 2011 to a low under 2.75% in October 2012, so spreads are still a positive, and are only .01% above their 12 month low.

Money supply

M1

M2

Real M1 made a YoY high of about 20% in January 2012 and has generally been easing off since.  This week's YoY reading increased sharply for the second week in a row.  Real M2 also made a YoY high of about 10.5% in January 2012.  Its subsequent low was 4.5% in August 2012. It has increased slightly in the last few months and has stabilized since.

Oil prices and usage

Usage 4 week average YoY -0.8%

The price of a gallon of gas, after declining sharply in March and April, rose again in May. The 4 week average for gas usage remained negative after two positive YoY months several months ago.

Bank lending rates

The TED spread is still near the low end of its 3 year range.  LIBOR remains close to a 3 year low.

JoC ECRI Commodity prices

After several weeks of more positive signs, last week we returned to the pattern of gradual deterioration that began in February. This week most indicators remain positive and there were fewer negatives.

Temp staffing is becoming a larger concern as it declined again and remains below last year's rate. Also negative this week were mortgage refinancing and treasury bonds, reflecting the bond selloff. Real estate loans, commodities, and shipping were neutral. Gas usage remains negative but may continue to reflect increased efficiency. Gas prices increased sharply but we haven't moved into a constrictive price range yet. After having their best week in months last week, this week tax withholding had its worst comparison in months. Averaged out the two weeks are lukewarm.

The biggest positive remains very strong consumer spending. Positives included house prices, YoY purchase mortgage applications, money supply, and overnight bank rates. The spread between corporate and treasury bonds contracted. Weekly jobless claims improved. Rail had a very good week. It has been decidedly mixed over the last few months.

Last week I said that for me to be sold that the data is actually rolling over, I would want to see a sustained increase in jobless claims and a sustained deterioration in consumer spending. That wasn't happening as of last week, and it certainly didn't happen this week either. The economy still seems to be moving forward - but in first gear.

Have a nice weekend.

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The Massive Difference In Unemployment Between Those Who Do And Don't Have A College Degree

One of our favorite charts to look at from the latest jobs report: The massive difference in the unemployment rate between those who do and don't have a college degree.

The blue line is the unemployment rate for those with a Bachelor's Degree or higher. Red line is high school graduates who didn't graduate from college.

While the gap is massive, it is true that the rate for the high school graduates has come down significantly.

FRED

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