Un(Employment) Friday 2/5

The data continues with the January Employment Situation Report.

The top-line was a loss of 20,000 jobs but the unemployment rate "as reported" fell from 10.0 to 9.7%.

This was good for an almost-immediate 10 point ramp in the futures, exactly as I had talked about last night in the video – the potential for anything "in line" to provoke a snapback was quite real, and it became realized – at least until people actually read inside the report, that is!

But one must dig into the report and try to determine if we’re seeing real improvement, or whether we’ve got statistical adjustments, remembering that January is a difficult month under the best of times because of benchmark and annual revisions.

And here we find some problems.

First, let’s start with the good news: 

While we’re not gaining employment yet the direction of the move is back toward gains – and has been since September.  The trajectory continues, but one must remember that until this number has a positive sign in front of it, we’re still losing.

The problem is that a big part of this has to do with revisions to population "guesses" that were put into the system for this month.  When one looks there, we see a few problems – first, the usual "January Effect" change in the "Not In Labor Force" table: 

It is common to find downticks in this chart in January – but whether they mean anything is another matter. We had one last year, we had one the year before, and we had one this year.  While the last few years this has been a negative print (improvement) there are years in which the change was positive.  Whether this is a consequence of the population normalization that happens every January or whether it’s real will have to wait for another month or two.  One month a trend does not make.

But in some of the other details things don’t look so good, where we look at the product of these statistical adjustments that filter through to both sides of the sheet.

That ain’t good.  The total employed continues to decline, which is in line with the actual report.  So in this case household and establishment are in alignment – and showing continued losses. The bad news is that in the household survey the trajectory of losses has resumed since September its downward trend – and shows no evidence of improvement.

Then there’s the ugly. 

That’s real bad.  This looked to be stabilizing in the middle of 2009, but no more.

This latter chart, ultimately, is the one you can’t ignore, and it’s the one that will, if it continues, eventually strip the government of its ability to both borrow and spend on an unlimited basis.  To the extent that you believe that the government is both able and willing to prop up the civilian economy with various "stimulus" games such ability is absolutely reliant on the trend in the above chart not continuing its deterioration.

I’ll make a prediction based on the above – there are going to be some truly ugly revisions to IRS tax receipt assumptions.  I don’t know if the bond market will sit up and pay attention ala Portugal, but if it does the "little sell-off" we’ve seen thus far is a nothingburger compared to what’s coming.