Courtesy of Tyler Durden
Two takes on the NFP number: first from Knight Capital, and second from most recent entrant in the ridiculous propaganda drama queen race, Goldman Sachs, which is most gladly selling ES as its customers are buying with visions of S&P 1,500 as per David Kostin’s latest chartmongery.
From Brian Yelvington at Knight:
The headline provided a significant disappointment compared to the slew of expectations and whispers following the enormous ADP print on Wednesday. Prior to that adjustment, these numbers would have looked favorable when the prior revisions to NFP and Private Payrolls are taken into account. With the huge expectations factored in, NFP looks better, but private payrolls is still a miss. Our read is that these numbers, if reconfirmed in February for January data, point to the jobs situation being barely within the range of the “steady state” necessary to keep the unemployment rate from moving. Recall we need 150K-200K new jobs each month to keep the rate from creeping up. The birth/death adjustment added 24K to the jobs rolls according to the model. The birth/death adjustments will be adjusted quarterly instead of annually beginning with the February report.
The rate itself declined to 9.4% from a prior 9.8%, driven largely by participation rates that showed negative trends (and associated benchmark revisions). The employment ratio rose to 58.3% from 58.2% and the average duration of unemployment rose to 34.2 weeks from 33.9 weeks. However, 556K people dropped off of the unemployment rolls and the pool of available labor dropped by 333K as the participation rate declined to 64.3% (down 0.02%). This appears pretty large on a seasonal basis, and we will examine the numbers in January very closely to see whether or not the drop in participation is an idiosyncratic issue or evidence of continued discouragement and persistent discouragement on the part of workers. The underemployment index dropped to 16.7% down from 17%, a positive sign.
Bonds mostly rallied on the news while equities dropped. Policy rates and inflation expectations are a potential flood that is being held back by a lackluster jobs market. The assumption is that the Fed will turn hawkish (and apparently admit to inflation pressures or succumb to bubble fears) if jobs data are bullish. We still believe the Fed is likely to let things run for a while on policy rates given the difficulties in trying to revisit stimulus if the exit is too early. Equities are a bit more of a mystery. While growth is good and points to a more robust economy, the specter of global issues remains as does the impact of QE withdrawal. If one accepts that equities rally on QE, should they not sell off on its withdrawal? The Fed walks this tightrope and easy policy rates are its balance beam as it noted with its references to the communications problems outlined in the recent minutes. Bernanke’s upcoming testimony should be the next significant data point for the markets.
And next, from Jan Hatzius:
MAIN POINTS:
1. Nonfarm payrolls rose only modestly in December, in line with our expectations but weaker than the median forecast. Upward revisions totaling 70k offset some of this disappointment, as the surprisingly soft November figure was taken up 32k to +71k. The composition of the December increase remains concentrated in sectors that have been the mainstay of gains during this recovery-education and health (+44k), leisure and hospitality (+47k), and temporary help (+16). Government payrolls fell only 10k, less than generally expected, as the federal government covered half of a 20k loss at the state and local level.2. The report suggests only modest gains in manufacturing output, as payroll increases in this sector amounted to only 10k while the factory workweek edged down 0.1 hour to 40.2 hours (overtime was unchanged). In the broader economy, the workweek was stable and the index of total hours worked rose only 0.1%.
3. The survey of households likewise had mixed results, with employment gains on the stronger side – 297k on the headline figure and 321k when adjusted to match the concepts and definitions underlying the payroll count. However, this accounted for only about half of the 0.4-point drop reported for the unemployment rate, as the labor force fell by a similar 260k. The weakness in the labor force has been persistent enough to suggest that at least part of it – perhaps a large part – is fundamental in nature. That said, it remains a source of some puzzlement and surprise, the unwinding of which could put a floor on how quickly the jobless rate falls in coming months. As noted above, we have applied a 1-point judgmental adjustment to the US-MAP reading on unemployment to reflect this less-than-strong composition.
4. Average hourly earnings rose only 0.1% in December. In combination with the modest increase in payrolls and the flatness in the workweek, this implies only a tiny increase in wage and salary income for the month. On a year-to-year basis, the wage trend is only +1.8%, a bit more than in November given that the wage figure was down slightly in December 2009, but weak in historical context.
