Merrill Lynch expects Q3 50c per share mark-to-market loss
Write-downs of an estimated $4.5 billion, net of hedges, related to incremental third quarter market impact on the value of CDOs and sub-prime mortgages. These valuation adjustments reflect in part significant dislocations in the highest-rated tranches of these securities which were affected by an unprecedented move in credit spreads and a lack of market liquidity in these securities, which intensified during the third quarter. During the quarter, the company significantly reduced its overall exposure to these asset classes.
Write-downs of an estimated $967 million on a gross basis, and $463 million net of related underwriting fees, related to all corporate and financial sponsor, non-investment grade lending commitments, regardless of the expected timing of funding or closing. These commitments totaled $31 billion at the end of the third quarter of 2007, a net reduction of 42% from $53 billion at the end of the second quarter. The net losses related to these commitments were limited through aggressive and effective risk management, including disciplined and selective underwriting and exposure reductions through syndication, sales and transaction restructurings.
I agree....the lowest income earners teachers, food service, and health care - all others contracting or neutral....and we wonder why Target reduced their numbers.
This probably rules out any further Fed cuts in October, barring some sort of disaster. The initial reaction of the markets may be positive, but eventually folks will have to reconcile the fact that interest rates are going up (10 year shot up to 4.6%) with a job market that is not as bad as Augusts' report suggested.
The markets were expecting a reduction in jobs, which is bad for the economy, but that would have been good, because it would mean that the Fed would have been more likely to reduce rates, which is good. But since the jobs report came in strong, that means that the Fed might not cut rates, which is bad, but the increased jobs are good for the economy, unless it increases inflation, which is bad.
Hmm . . . I think I'm going to need some help sorting this one out.
This report reflects the current state of the economy - below trend growth, but not recessionary. The overall trend though is one of softening, and the chickens are only just starting to come home to roost in the housing and financial coops.
rich, stronger than expected - I edited the sentence - especially with the strong upward revision to the August report. The first graph (YoY change in employment shows growth has been weak over the last year.
Who can believe these numbers any more -- revisions, revisions and more revisions. It appears to me that the Aug # were very conveniently bad and the Fed was able to point to this for a drastic cut. Now, lo and behold those government (our government would NEVER goose the facts, would they) employment #s were the heart of those terrible numbers. Margin of error of +/- 95,000. What are they seasonally adjusting anyway.
This is unbelieveable. Wall street is pure and simple gambling. Unless you're alligned with "the House" forget about it. I give up
Employment statistics is one of those areas where the media headlines usually miss the big picture. I think that some of CR's commentary often does the same.
So, here's the big picture. It's not that complicated.
At the start of this year, there were 145,926,000 people employed in the civilian labor force in the U.S.
Over 9 months, the U.S. has gained 331,000 civilian jobs. That's an average of 36,778 per month. It's what you would expect at the tail-end of an epic expansion.
Over the decade 1997-2006, the U.S. added 18 million civilian jobs, an average of 150,000 per month.
What struck me about the long term plot is that the 'peak' rates of job growth in the current cycle coincide with levels of job growth where the economy entered recessions...another new normal?
Also, looks like a series of lower highs whatever that signifies...
You said the numbers are not recessionary. But if you look at the y-o-y graph you can see that all the previous 6 recessions started by a decline in the y-o-y nonfarm payroll employment growth and went negative only at the end of the recession.
So the current one could very well mean we are already in recession, possibly started 1-2 months ago, just by looking at the graph. In every recession the y-o-y change was clearly positive still at the beginning of a recession. So my guess is that this alone does not prove anything. We could be in a recession already or then not. Right?
This is why I despise the main stream press: (from cnnfn.com)
Treasurys retreat as in-line jobs reading leaves door open to another rate cut by Federal Reserve; dollar gains.
Huh? If the odds of the fed cut just rose, treasuries should gain and yields fall. Just the opposite is happening; bonds are falling across the board (2/5/10/30 yr) and yields are up. Whatever stooge wrote this doesn't even understand the bond market.
This kind of reporting makes Gretchen M. look like a pulitzer prize winner.
As has been pointed out many times now, these numbers do not represent "under the table" work being done by illegals. With the illegal population at an estimated ten million plus, there's tremendous room for error in the "official" calculations. The anecdotal evidence--specifically remittances to Mexico--are showing that employment of illegals is way down, so that 4.7% unemployment rate might be too low by half.
And jobs being cut in financial services while they're being added in food services--say, I wonder what effect that will have on overall wages.
"The reason cited for the reversal in the department's August hiring estimate -- to a jobs gain instead of a loss - was the government underestimated government employment, especially hiring of teachers to start a new school year.
The bulk of the gains in September hiring came in service industries, including an addition of 44,000 in education and health services and 37,000 in the government. In the goods-producing sector, another 18,000 factory jobs were shed and 14,000 construction jobs were lost."
Only the government is hiring. Private business still seems cautious. A lower dollar doesn't seem to affect manufacturing employment. This is not a "sky is falling" report but still it isn't positive news.
Does anyone smell a fish? Last month the Fed's got the job numbers they wanted to cut both the discount and fed fund rates, today, those numbers have been revised upward significantly. Oops! Maybe the Fed shouldn't have raised rates 'to save the economy' but my bet is they don't surprise us with a half point increase across the board to rectify their mistake.
Has anyone noticed that over the last year the Fed's always get the numbers they want to justify their position? Usually those numbers are significantly revised.
This reminds me of lies, damn lies, and statistics. While you can not believe the numbers, you have to trade on them because everyone else does. In my opinion, BLS stands for Bullsh**t, Lies, and Statistics. This is based on the job hunting experience of my friends and family. If unemployment was so low, their job searches would not have taken six months or required them to move
--
CR: This shows the weak - but not recessionary - job growth over the last year.
Hello CR,
What has been the average YoY employment growth rate at the onset of the past recessions? It seems, from the graph, that it is higher than the current rate, no?
As many of you have suggested above, I think that the big news for the markets is that the chance of another Fed cut at the end of the month is greatly reduced. Not surprisingly, the dollar is rallying. The next few days will be interesting for the Market. Will the resistance hold as the chance of futher cuts declines? On the other hand, bad news related to financials, mortgages and housing will continue. Will the Market believe that the big write offs for third quarter put most of the problems behind?
The next few days should tell whether we have seen a DOW double top and are headed down, or do we have "clear sailling" for the rest of the year?
I don't think that was true in 2001. The recession officially started in March and the job losses a/t the BLS payroll survey started either that month or the one before. You may be right about previous reccesions especially the ones that were manufacturing driven...
Oh, sorry. I tried and failed to paste in a comment from Mr. Bail Out that said that historically, the job losses never started until near the end of recession. That as recessions started, job growth was positive, just slowing. As I mentioned above, I think that wasn't the case in 2001...
So August is revised up 85,000 and the initial shot for Sept is more than 100,000 above expectations...and we can still take that guestimate, (113,000) seriously enough to make bets on a rallying dollar, a holding interest rate, and possibly more?
The details please, that examine the losses/gains in that total employment picture...or izit too nuanced, possibly undemocratic? to point out that not all jobs are created equal?
these numbers are a farse. BB justified his rate cut last month to save the financials and Wall St. he specifically stated that if and when the banking system is threatened the Fed has to get out ahead of it by cutting rates. this just proves his loyalties and priorities lie with them, not the real economy or the rest of us. he's right, the day he dropped the discount rate initially, the Dow was down about 380 pts intraday as i recall. the Nikkei had dropped about 850 pts the nite before and we definitely were crashing at the time. he's done a remarkable job in saving their asses.
Try reading the rest of my post Jas. Taken in aggregate, the current data points to a slowing economy, not one that is currently in recession, but probably trending in that direction. Terribly sorry if that inconveniences your world view - armageddon will just have to wait for tomorrow.
"FED VICE CHAIRMAN KOHN SAYS HALF-PERCENTAGE-POINT CUT MAY BE ENOUGH"
WASHINGTON (Thomson Financial) - The Federal Reserve's rate cut last month was a "first approximation of what might be required to keep the economy on a sustainable growth path", Fed vice-chairman Donald Kohn said today, hinting that there could be more rate cuts to come.
Pay no heed to Fed governor speeches. When Ben & the Goldman PPT get them in the room, they will be told what to do. How else can you explain all of the unanimous votes?
Most of the governor chatter prior to the 50bp drop was of the moral hazard variety...you are wasting your time (and annoying the non-singing pig) reading the Fed speeches.
CR, if the BLS revisions really are due to government employment, might it be useful to back out government employment from your charts and just look at private sector employment? Should that show a different trend?
Another revisions question - while the eyecatching revision was the August number, what about the previous months that had material downward revisions last month - did they get revised again?
Pay no heed to Fed governor speeches. When Ben & the Goldman PPT get them in the room, they will be told what to do. How else can you explain all of the unanimous votes?
I totally agree. The buzz about the call that Rubin made to Bernanke post the Aug7th meeting makes it quite clear that the Fed is Wall Street's b*tch. And the fact that the votes are unanimous and that governors who before the meeting dance around with caution, inflation worries phrases subsequently do an about face amazes me. It reminds me of Politburo, Central Committee meetings in Commie parties the world over. This must be their equivalent of public self-criticism.
Bad trend at this site: the word "lie" is becoming ubiquitous on this forum. That is a bad omen for for the world of finance.
Another bad trend, politics creeping into financial news. Let's take a poll. 2 questions
Party affiliation? economy bullish or bearish.
I bet there will be a strong correlation between the two questions.
If so , is financial news slanted?
Nice historic comparison on private employment growth, rich.
We've got a lot of mess to clean up, and I hoped that bad employment numbers today would wake everyone up and get things started (cutting stupid spending, etc.).
So here we have a situation where year-to-date, the actual survey has shown that employment is down 207,000 (not seasonally adjusted), but the employment estimate from the model is up 893,000.
I wonder how many businesses are being born versus dying under the current climate.
Jas
-x-x-x-x-x-
Davis Rosenberg, ML; 10/05/07:
The BLS augments the survey with the Birth/Death model
Today is nonfarm payroll day and it amazes us as to how much money traders around the world put down on this number youre probably better off at one of the roulette tables at the Bellagio: recall that the BLS polls some 400,000 establishments each month during the year, collects the payroll data, seasonally adjusts the count but you see, the process doesnt stop there. The BLS also augments the survey with what is knows as the Birth/Death model, which is not about obstetricians or morticians but the net creation of companies, big and small, that is not being picked up by the fixed sample in the survey. There is nothing wrong with this methodology it makes for a more robust employment estimate.
Be that as it may, at turning points in the business cycle, what tends to happen is that the nonfarm payroll survey overestimates job creation heading into downturns and underestimates job creation when recessions end. So here we have a situation where year-to-date, the actual survey has shown that employment is down 207,000 (not seasonally adjusted), but the employment estimate from the model is up 893,000. So quite amazingly, employment has not been reported as having contracted because of the model the businesses that are actually surveyed, however, have on net cut their staffing this year which goes a very long way towards explaining why it is that even with this wonderful rebound in the equity market that consumer confidence measures have managed to sink to their lowest levels since just after the hit that sentiment took after Katrina two years ago.
I think the FED is already having enabler's remorse over last month's 50 bps increase, and today they're out in force trying to kill expectations of another 25bps on Halloween.
I reckon the 25 bps would have been a given if they'd have been more measured in September--but they were trying to suck up to the market captains who were screaming to keep the credit party going for another couple of months. The Fed complied--"Okay, you can have another few minutes of TV, and one more package of jelly beans, but then it's off to bed, you little scamps!"
But the darlings won't be happy, come Halloween. "Aw jeez, Grampa Ben, it's Halloween! Can't we have just one more treat?"
And Grampa will fold, even though he knows tha kids are getting spoiled. Just like any granparent, he knows the kids' character issues are someone else's problem, farther down the road. (They get him again at Christmas, too. "Grampa--all the other kids around the world are getting new 25bps reductions--can't we have one too?)
--
"Try reading the rest of my post Jas. Taken in aggregate, the current data points to a slowing economy, not one that is currently in recession..."
Nothing in the Employment Report says that the economy is not currently in recession (YoY growth is at levels seen at the onset of recessions, no?).
Employment is the laggiest of the lagging indicators, got it? What I am saying that ignore the Employment Report as far as recession forecasting is concerned. All the Employment Report can do is to confirm a recession after being in recession for few months.
The Nonfarm Payroll Employment vs. Recessions chart is interesting.
It seems that the decline is severe in most cases but there were three instances where a severe decline was arrested (somehow).
The shape of the decline from early 06 seems oddly different; its less steep and more prolonged than the other changes in unemployment.
What's different this time? I suspect that part of it is due to the illegal immigrant employment not showing up (either on the upswing or downswing). The latest peak is significantly lower than previous peaks (which also appear to have peaked at successively lower levels).
Another part may be the marked improvement of inventory management since the mid 80s due to improved technology. We just don't get the huge misallocations of capital tied up in inventory anymore which results in lower volitility in employment.
But this brings me to the real issue:
While inventory control in manufacturing has been massively improved to the point where it is virtually fully optimized, isn't this economy facing a HOUSING inventory issue of historic proportion? Am I overestimating the impact inventory imbalances had in previous recessions?
How does this type of inventory imbalance differ from the pre-technology, manufacturing imbalances of, say, the 70's? Does it impact the economy more or less or is it just not meaningful?
As I noted earlier, maybe its different (at least) in that the nonfarm payroll impact of illegal immigrant employment was just never measured either going up or going down and that the worst is behind us. However, perhaps this inventory imbalance may be worse in that it is a very PERSONAL problem as opposed to a corporate problem.
I don't know the answer either way but I'd love to listen to other's thoughts in this regard. Seems to me that employment volitility has been declining and one explanation is improvement in inventory management.
If this is true and if inventory mis-management was a major factor in much earlier recessions will a major inventory imbalance in this one, very personal, sector of the economy play differently? If so, how so?
There's no question that the housing disaster and weakening employment play into the Democrats' hands. The worse the economy gets, the stronger the party will be in next year's general election. They know that, and that's why they are pumping up the "disaster rhetoric."
The curious thing is why the Republicans aren't trying to cut off their access to high ground. It's like the Republicans (the party that once had Rovian strategic focus) have lost all ability to assess political turf and calculate adjustments that will translate into votes. They have such weak leadership and lousy candidates that they almost don't exist. It's a huge sign of weakness for the stability of our political system. It foreshadows a Congress in which Democrats will have not only an opportunity but a mandate for socialist/protectionist reform, similar in some ways to the New Deal.
Payrolls in health care increased by 33,000, and food-service jobs rose by 25,000. Those two industries have accounted for more than half of the job growth so far this year, the Bureau of Labor Statistics noted.
Ha ha ha. Wasn't a lower dollar going to spur export manufacturing jobs?
Nope, only low pay fast food and low productivity health care jobs are being created.
Gretchen M. won the 2002 Pulitzer Prize for beat reporting. Although I acknowledge that the apple thing was her fault, too, it behooves us not to score cheap yuks that discredit the blog.
These government reports are completely manipulated and should be dismissed outright. Anyone who still believes in them are probably the same sheople expecting WMD's to be found in Iraq.
Notice how the U.S.$ has fallen and gold and silver have moved up sharply after this "supposedly" stronger than expected jobs report. These government reports are becoming a farce and foreigner investors are not blinded like others. Buy only physical gold and silver to protect your family.
The major growth industries in the U.S. right now are
Health care
Government
Higher education
Retail/food services
All four are nearing a secular peak.
When you think about it, these are the industries that define a decadent economy with an over-the-top standard of living, fueled by public and private debts that will never be repaid.
Mr. Bail Out, employment is at best a coincident indicator for the economy (more likely trailing) - and that is why the YoY graph usually shows employment growth slowing before a recesson, but still positive.
The graph shows the weak job growth over the last year. But, since monthly job growth is still positive - it's "weak, but not recessionary". Sorry, I wasn't more clear at 5:30AM (my time).
We've seen mid-cycle slowdowns in the '80s and '90s (although not this weak) that also prompted concerns of a recession (not by me though - I was raging bull both times).
Private business still seems cautious. A lower dollar doesn't seem to affect manufacturing employment.
Oh yes it does - just not month to month. Mfg capacity decisions take YEARS of trend-line to establish, not day to day.
If you go out and buy a million dollar machining center that will last 20 years if well maintained and take 7-10 years to depreciate... then you want to make damn sure the business is going to be there next month, next year, maybe even next decade... else you try to stretch current capacity and not add capacity... and capacity means jobs, no one hires workers to walk around a factory... they hire workers to run machines, service machines or do office support of machines... its the machines that are the key.
Every time domestic mfgrs go out and say "Finally the dollar is getting in line with world currencies..." and add capacity... some CB gets the bright idea to pillage their currency and the US mfg is stuck with stranded capital once again.
These guys have been burned a lot.
This explains both the 'caution' and the apparent lack of sensitivity to dollar FX changes...
But if the dollar takes a permanent step down, then mfg & related support employment will definitely increase... give it time.
So the July number had an additional 25,000 jobs added while the August number had 93,000 added (the revised revisions)?
Also, interesting to note the temp jobs were down 20,000 in the report...
It jives with what I'm seeing... anecdotal evidence:
A week ago I see my college age son, he works at Mall of America doing retail... his hair is a mop on this particular day so I say to him... "Get your hair trimmed - you work in retail and you need to look 'clean'."
He stares at me with that 'oh dad' look... I go on:
"Listen, if there are layoffs you don't want to be one of them..." He cuts in:
"Dad we are not only beating last years numbers, we are beating the pumped up forecast for THIS year's numbers... blowing the doors off them. Management is already in a panic trying to hire more staff for the Holiday - they can't hire enough, fast enough..."
Now granted that's one case but follow that to my wife who just got a 10% raise and was told she will be getting more at the first of the year... they are also way over plan and have lost key employees lately (hence bumping pay to key employees).
On top of that they have been running out of materials for production and have had to hunt all over North America looking for more... they found it but are now being told there won't be any more until November (she has orders due way before that - means lotsa late hours for her & her team).
Anecdotal for sure... but I usually see recessions WAY before anyone else. I don't see it right now.
dryfly said: "...Anecdotal for sure... but I usually see recessions WAY before anyone else. I don't see it right now."
There's (more) data to back-up your observations. The ISM manufacturing and non-manufacturing indices have employment components in them, and they both showed expansion.
dryfly, when I've gone to the mall recently (luckily not often) the stores are still packed. And the restaurants are still crowded.
Everything I'm seeing suggests no recession - yet.
At the beginning of the year, I thought we could rule out strong growth (check) and a severe recession (so far, so good) - but the coin flip was between slow growth and a mild recession. I've been leaning toward recession all year - and I still think that is the way the coin will fall ... but other than shorter wait times at the restaurant, I hope we pull a mid-cycle slowdown (although this is already the ugliest mid-cycle ever).
--
"Everything I'm seeing suggests no recession - yet."
Two things I am fairly certain about you, CR:
You will not predict a recession until the economy is in a recession (that is a hallmark of being an economist).
You will not reconcile your housing demand estimate with the actual data. As a result, you will only revise down your estimate when you wouldn't be able to ignore the data anymore and you will come up with some excuse as to why your estimate was right at the time and why you know have to change it.
I know that you try your best but your best wouldn't be good enough when it comes to recession forecast and housing demand. Only time will tell which one of us is right on these two issues.
I predict that when the next recession occurs, Jas Jain will have predicted it several months in advance. Of course, that's the benefit to having predicted a recession every month for the last 4 years.
73,000 new private sector jobs is a strong report?? Please.
Moin,
ot but
Expired
Merrill Lynch expects Q3 50c per share mark-to-market loss
Write-downs of an estimated $4.5 billion, net of hedges, related to incremental third quarter market impact on the value of CDOs and sub-prime mortgages. These valuation adjustments reflect in part significant dislocations in the highest-rated tranches of these securities which were affected by an unprecedented move in credit spreads and a lack of market liquidity in these securities, which intensified during the third quarter. During the quarter, the company significantly reduced its overall exposure to these asset classes.
Write-downs of an estimated $967 million on a gross basis, and $463 million net of related underwriting fees, related to all corporate and financial sponsor, non-investment grade lending commitments, regardless of the expected timing of funding or closing. These commitments totaled $31 billion at the end of the third quarter of 2007, a net reduction of 42% from $53 billion at the end of the second quarter. The net losses related to these commitments were limited through aggressive and effective risk management, including disciplined and selective underwriting and exposure reductions through syndication, sales and transaction restructurings.
I agree....the lowest income earners teachers, food service, and health care - all others contracting or neutral....and we wonder why Target reduced their numbers.
This probably rules out any further Fed cuts in October, barring some sort of disaster. The initial reaction of the markets may be positive, but eventually folks will have to reconcile the fact that interest rates are going up (10 year shot up to 4.6%) with a job market that is not as bad as Augusts' report suggested.
The markets were expecting a reduction in jobs, which is bad for the economy, but that would have been good, because it would mean that the Fed would have been more likely to reduce rates, which is good. But since the jobs report came in strong, that means that the Fed might not cut rates, which is bad, but the increased jobs are good for the economy, unless it increases inflation, which is bad.
Hmm . . . I think I'm going to need some help sorting this one out.
This report reflects the current state of the economy - below trend growth, but not recessionary. The overall trend though is one of softening, and the chickens are only just starting to come home to roost in the housing and financial coops.
WaMu and Merrill confessed on a very good day. Are they lucky or what?
rich, stronger than expected - I edited the sentence - especially with the strong upward revision to the August report. The first graph (YoY change in employment shows growth has been weak over the last year.
Best Wishes.
Oct 1/07-
Fed Prez Fisher states rates could move in either direction going forward, while Prez Poole suggests investors shouldnt assume more rate cuts
Expired
Who can believe these numbers any more -- revisions, revisions and more revisions. It appears to me that the Aug # were very conveniently bad and the Fed was able to point to this for a drastic cut. Now, lo and behold those government (our government would NEVER goose the facts, would they) employment #s were the heart of those terrible numbers. Margin of error of +/- 95,000. What are they seasonally adjusting anyway.
This is unbelieveable. Wall street is pure and simple gambling. Unless you're alligned with "the House" forget about it. I give up
Employment statistics is one of those areas where the media headlines usually miss the big picture. I think that some of CR's commentary often does the same.
So, here's the big picture. It's not that complicated.
At the start of this year, there were 145,926,000 people employed in the civilian labor force in the U.S.
In September, there were 146,257,000.
Employment Situation.
Over 9 months, the U.S. has gained 331,000 civilian jobs. That's an average of 36,778 per month. It's what you would expect at the tail-end of an epic expansion.
Over the decade 1997-2006, the U.S. added 18 million civilian jobs, an average of 150,000 per month.
FED VICE CHAIRMAN KOHN SAYS HALF-PERCENTAGE-POINT CUT MAY BE ENOUGH
rich, I think the first graph illustrates that point.
Best Wishes.
CR,
What struck me about the long term plot is that the 'peak' rates of job growth in the current cycle coincide with levels of job growth where the economy entered recessions...another new normal?
Also, looks like a series of lower highs whatever that signifies...
Calculated Risk: A question for you:
You said the numbers are not recessionary. But if you look at the y-o-y graph you can see that all the previous 6 recessions started by a decline in the y-o-y nonfarm payroll employment growth and went negative only at the end of the recession.
So the current one could very well mean we are already in recession, possibly started 1-2 months ago, just by looking at the graph. In every recession the y-o-y change was clearly positive still at the beginning of a recession. So my guess is that this alone does not prove anything. We could be in a recession already or then not. Right?
This is why I despise the main stream press: (from cnnfn.com)
Treasurys retreat as in-line jobs reading leaves door open to another rate cut by Federal Reserve; dollar gains.
Huh? If the odds of the fed cut just rose, treasuries should gain and yields fall. Just the opposite is happening; bonds are falling across the board (2/5/10/30 yr) and yields are up. Whatever stooge wrote this doesn't even understand the bond market.
This kind of reporting makes Gretchen M. look like a pulitzer prize winner.
@central
LOL!
As has been pointed out many times now, these numbers do not represent "under the table" work being done by illegals. With the illegal population at an estimated ten million plus, there's tremendous room for error in the "official" calculations. The anecdotal evidence--specifically remittances to Mexico--are showing that employment of illegals is way down, so that 4.7% unemployment rate might be too low by half.
And jobs being cut in financial services while they're being added in food services--say, I wonder what effect that will have on overall wages.
Strong job growth eases recession fears
| Reuters
"The reason cited for the reversal in the department's August hiring estimate -- to a jobs gain instead of a loss - was the government underestimated government employment, especially hiring of teachers to start a new school year.
The bulk of the gains in September hiring came in service industries, including an addition of 44,000 in education and health services and 37,000 in the government. In the goods-producing sector, another 18,000 factory jobs were shed and 14,000 construction jobs were lost."
Only the government is hiring. Private business still seems cautious. A lower dollar doesn't seem to affect manufacturing employment. This is not a "sky is falling" report but still it isn't positive news.
Does anyone smell a fish? Last month the Fed's got the job numbers they wanted to cut both the discount and fed fund rates, today, those numbers have been revised upward significantly. Oops! Maybe the Fed shouldn't have raised rates 'to save the economy' but my bet is they don't surprise us with a half point increase across the board to rectify their mistake.
Has anyone noticed that over the last year the Fed's always get the numbers they want to justify their position? Usually those numbers are significantly revised.
Well, at least bloomberg reporters have a clue:
Fed futures reduce odds of rate cut after jobs data
This reminds me of lies, damn lies, and statistics. While you can not believe the numbers, you have to trade on them because everyone else does. In my opinion, BLS stands for Bullsh**t, Lies, and Statistics. This is based on the job hunting experience of my friends and family. If unemployment was so low, their job searches would not have taken six months or required them to move
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CR: This shows the weak - but not recessionary - job growth over the last year.
Hello CR,
What has been the average YoY employment growth rate at the onset of the past recessions? It seems, from the graph, that it is higher than the current rate, no?
Thanks.
Jas
--
"This report reflects the current state of the economy - below trend growth, but not recessionary."
Let me repeat one more time -- Businesses react and lag the economic growth as well as decline by 6-12 months.
EMPLOYMENT IS THE LAGGIEST OF THE LAGGING INDICATORS.
The report has in no way changed the recession probabilities.
Jas
As many of you have suggested above, I think that the big news for the markets is that the chance of another Fed cut at the end of the month is greatly reduced. Not surprisingly, the dollar is rallying. The next few days will be interesting for the Market. Will the resistance hold as the chance of futher cuts declines? On the other hand, bad news related to financials, mortgages and housing will continue. Will the Market believe that the big write offs for third quarter put most of the problems behind?
The next few days should tell whether we have seen a DOW double top and are headed down, or do we have "clear sailling" for the rest of the year?
--
Hello CR,
Do you track SMALL BUSINESS ECONOMIC TRENDS (SBET)?
NFIB | Small Business Association
Don't they employ bulk of the private workforce?
It has been doing poorly. The next monthly report is due next week, I believe.
Jas
I don't think that was true in 2001. The recession officially started in March and the job losses a/t the BLS payroll survey started either that month or the one before. You may be right about previous reccesions especially the ones that were manufacturing driven...
Oh, sorry. I tried and failed to paste in a comment from Mr. Bail Out that said that historically, the job losses never started until near the end of recession. That as recessions started, job growth was positive, just slowing. As I mentioned above, I think that wasn't the case in 2001...
So August is revised up 85,000 and the initial shot for Sept is more than 100,000 above expectations...and we can still take that guestimate, (113,000) seriously enough to make bets on a rallying dollar, a holding interest rate, and possibly more?
The details please, that examine the losses/gains in that total employment picture...or izit too nuanced, possibly undemocratic? to point out that not all jobs are created equal?
these numbers are a farse. BB justified his rate cut last month to save the financials and Wall St. he specifically stated that if and when the banking system is threatened the Fed has to get out ahead of it by cutting rates. this just proves his loyalties and priorities lie with them, not the real economy or the rest of us. he's right, the day he dropped the discount rate initially, the Dow was down about 380 pts intraday as i recall. the Nikkei had dropped about 850 pts the nite before and we definitely were crashing at the time. he's done a remarkable job in saving their asses.
that was me above as anonymous.
one more thing. BB is definitely their "boy". where i come from this is a diminutive description of a weak, lowly individual.
Try reading the rest of my post Jas. Taken in aggregate, the current data points to a slowing economy, not one that is currently in recession, but probably trending in that direction. Terribly sorry if that inconveniences your world view - armageddon will just have to wait for tomorrow.
"FED VICE CHAIRMAN KOHN SAYS HALF-PERCENTAGE-POINT CUT MAY BE ENOUGH"
WASHINGTON (Thomson Financial) - The Federal Reserve's rate cut last month was a "first approximation of what might be required to keep the economy on a sustainable growth path", Fed vice-chairman Donald Kohn said today, hinting that there could be more rate cuts to come.
Business finance news - currency market news - online UK currency markets - financial news - Interactive Investor
That all depends on which numb nut is writing the story I guess.
Pay no heed to Fed governor speeches. When Ben & the Goldman PPT get them in the room, they will be told what to do. How else can you explain all of the unanimous votes?
Most of the governor chatter prior to the 50bp drop was of the moral hazard variety...you are wasting your time (and annoying the non-singing pig) reading the Fed speeches.
Declining MEW -> increased income demand -> increased labor supply -> decreased equilibrium cost of labor -> higher than expected job growth.
Duh?
CR, if the BLS revisions really are due to government employment, might it be useful to back out government employment from your charts and just look at private sector employment? Should that show a different trend?
CR,
Another revisions question - while the eyecatching revision was the August number, what about the previous months that had material downward revisions last month - did they get revised again?
==========================================
RE: Clyde
Pay no heed to Fed governor speeches. When Ben & the Goldman PPT get them in the room, they will be told what to do. How else can you explain all of the unanimous votes?
I totally agree. The buzz about the call that Rubin made to Bernanke post the Aug7th meeting makes it quite clear that the Fed is Wall Street's b*tch. And the fact that the votes are unanimous and that governors who before the meeting dance around with caution, inflation worries phrases subsequently do an about face amazes me. It reminds me of Politburo, Central Committee meetings in Commie parties the world over. This must be their equivalent of public self-criticism.
-K
So the July number had an additional 25,000 jobs added while the August number had 93,000 added (the revised revisions)?
Also, interesting to note the temp jobs were down 20,000 in the report...
Bad trend at this site: the word "lie" is becoming ubiquitous on this forum. That is a bad omen for for the world of finance.
Another bad trend, politics creeping into financial news. Let's take a poll. 2 questions
Party affiliation? economy bullish or bearish.
I bet there will be a strong correlation between the two questions.
If so , is financial news slanted?
Nice historic comparison on private employment growth, rich.
We've got a lot of mess to clean up, and I hoped that bad employment numbers today would wake everyone up and get things started (cutting stupid spending, etc.).
Repentance deferred, again. Maybe next month.
WTF, over on that dollar rally?! Ok what is THAT all about in the dollar index DX...
U.S $ INDEX (NYBOT:DX)
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This seems quite important:
So here we have a situation where year-to-date, the actual survey has shown that employment is down 207,000 (not seasonally adjusted), but the employment estimate from the model is up 893,000.
I wonder how many businesses are being born versus dying under the current climate.
Jas
-x-x-x-x-x-
Davis Rosenberg, ML; 10/05/07:
The BLS augments the survey with the Birth/Death model
Today is nonfarm payroll day and it amazes us as to how much money traders around the world put down on this number youre probably better off at one of the roulette tables at the Bellagio: recall that the BLS polls some 400,000 establishments each month during the year, collects the payroll data, seasonally adjusts the count but you see, the process doesnt stop there. The BLS also augments the survey with what is knows as the Birth/Death model, which is not about obstetricians or morticians but the net creation of companies, big and small, that is not being picked up by the fixed sample in the survey. There is nothing wrong with this methodology it makes for a more robust employment estimate.
Be that as it may, at turning points in the business cycle, what tends to happen is that the nonfarm payroll survey overestimates job creation heading into downturns and underestimates job creation when recessions end. So here we have a situation where year-to-date, the actual survey has shown that employment is down 207,000 (not seasonally adjusted), but the employment estimate from the model is up 893,000. So quite amazingly, employment has not been reported as having contracted because of the model the businesses that are actually surveyed, however, have on net cut their staffing this year which goes a very long way towards explaining why it is that even with this wonderful rebound in the equity market that consumer confidence measures have managed to sink to their lowest levels since just after the hit that sentiment took after Katrina two years ago.
I think the FED is already having enabler's remorse over last month's 50 bps increase, and today they're out in force trying to kill expectations of another 25bps on Halloween.
I reckon the 25 bps would have been a given if they'd have been more measured in September--but they were trying to suck up to the market captains who were screaming to keep the credit party going for another couple of months. The Fed complied--"Okay, you can have another few minutes of TV, and one more package of jelly beans, but then it's off to bed, you little scamps!"
But the darlings won't be happy, come Halloween. "Aw jeez, Grampa Ben, it's Halloween! Can't we have just one more treat?"
And Grampa will fold, even though he knows tha kids are getting spoiled. Just like any granparent, he knows the kids' character issues are someone else's problem, farther down the road. (They get him again at Christmas, too. "Grampa--all the other kids around the world are getting new 25bps reductions--can't we have one too?)
Spare the rod . . . .
Ladies and Gentlemen
Dump your dollars.
--
"Try reading the rest of my post Jas. Taken in aggregate, the current data points to a slowing economy, not one that is currently in recession..."
Nothing in the Employment Report says that the economy is not currently in recession (YoY growth is at levels seen at the onset of recessions, no?).
Employment is the laggiest of the lagging indicators, got it? What I am saying that ignore the Employment Report as far as recession forecasting is concerned. All the Employment Report can do is to confirm a recession after being in recession for few months.
Jas
The Nonfarm Payroll Employment vs. Recessions chart is interesting.
It seems that the decline is severe in most cases but there were three instances where a severe decline was arrested (somehow).
The shape of the decline from early 06 seems oddly different; its less steep and more prolonged than the other changes in unemployment.
What's different this time? I suspect that part of it is due to the illegal immigrant employment not showing up (either on the upswing or downswing). The latest peak is significantly lower than previous peaks (which also appear to have peaked at successively lower levels).
Another part may be the marked improvement of inventory management since the mid 80s due to improved technology. We just don't get the huge misallocations of capital tied up in inventory anymore which results in lower volitility in employment.
But this brings me to the real issue:
While inventory control in manufacturing has been massively improved to the point where it is virtually fully optimized, isn't this economy facing a HOUSING inventory issue of historic proportion? Am I overestimating the impact inventory imbalances had in previous recessions?
How does this type of inventory imbalance differ from the pre-technology, manufacturing imbalances of, say, the 70's? Does it impact the economy more or less or is it just not meaningful?
As I noted earlier, maybe its different (at least) in that the nonfarm payroll impact of illegal immigrant employment was just never measured either going up or going down and that the worst is behind us. However, perhaps this inventory imbalance may be worse in that it is a very PERSONAL problem as opposed to a corporate problem.
I don't know the answer either way but I'd love to listen to other's thoughts in this regard. Seems to me that employment volitility has been declining and one explanation is improvement in inventory management.
If this is true and if inventory mis-management was a major factor in much earlier recessions will a major inventory imbalance in this one, very personal, sector of the economy play differently? If so, how so?
There's no question that the housing disaster and weakening employment play into the Democrats' hands. The worse the economy gets, the stronger the party will be in next year's general election. They know that, and that's why they are pumping up the "disaster rhetoric."
The curious thing is why the Republicans aren't trying to cut off their access to high ground. It's like the Republicans (the party that once had Rovian strategic focus) have lost all ability to assess political turf and calculate adjustments that will translate into votes. They have such weak leadership and lousy candidates that they almost don't exist. It's a huge sign of weakness for the stability of our political system. It foreshadows a Congress in which Democrats will have not only an opportunity but a mandate for socialist/protectionist reform, similar in some ways to the New Deal.
That picture could not be darker for Wall Street.
Payrolls in health care increased by 33,000, and food-service jobs rose by 25,000. Those two industries have accounted for more than half of the job growth so far this year, the Bureau of Labor Statistics noted.
Ha ha ha. Wasn't a lower dollar going to spur export manufacturing jobs?
Nope, only low pay fast food and low productivity health care jobs are being created.
Long term employment trends dont look pretty
central_scrutinizer, jmf:
Gretchen M. won the 2002 Pulitzer Prize for beat reporting. Although I acknowledge that the apple thing was her fault, too, it behooves us not to score cheap yuks that discredit the blog.
Right, Tanta & CR?
These government reports are completely manipulated and should be dismissed outright. Anyone who still believes in them are probably the same sheople expecting WMD's to be found in Iraq.
Notice how the U.S.$ has fallen and gold and silver have moved up sharply after this "supposedly" stronger than expected jobs report. These government reports are becoming a farce and foreigner investors are not blinded like others. Buy only physical gold and silver to protect your family.
Fireworks
The major growth industries in the U.S. right now are
Health care
Government
Higher education
Retail/food services
All four are nearing a secular peak.
When you think about it, these are the industries that define a decadent economy with an over-the-top standard of living, fueled by public and private debts that will never be repaid.
The fifth industry on that list was real etate.
Mr. Bail Out, employment is at best a coincident indicator for the economy (more likely trailing) - and that is why the YoY graph usually shows employment growth slowing before a recesson, but still positive.
The graph shows the weak job growth over the last year. But, since monthly job growth is still positive - it's "weak, but not recessionary". Sorry, I wasn't more clear at 5:30AM (my time).
We've seen mid-cycle slowdowns in the '80s and '90s (although not this weak) that also prompted concerns of a recession (not by me though - I was raging bull both times).
Best Wishes.
--
How many Realt-Whores have real jobs today compared to a year ago?
I guess that we can deduct 1.5M Realt-Whores from employment numbers, YoY. And how about Mort-gage Breakers? And "Escort" services?? And more.
Housing IS a big deal for the economy and, especially, jobs. Denial will end one day.
There is a good reason why employment is the laggiest indicator.
Jas
Private business still seems cautious. A lower dollar doesn't seem to affect manufacturing employment.
Oh yes it does - just not month to month. Mfg capacity decisions take YEARS of trend-line to establish, not day to day.
If you go out and buy a million dollar machining center that will last 20 years if well maintained and take 7-10 years to depreciate... then you want to make damn sure the business is going to be there next month, next year, maybe even next decade... else you try to stretch current capacity and not add capacity... and capacity means jobs, no one hires workers to walk around a factory... they hire workers to run machines, service machines or do office support of machines... its the machines that are the key.
Every time domestic mfgrs go out and say "Finally the dollar is getting in line with world currencies..." and add capacity... some CB gets the bright idea to pillage their currency and the US mfg is stuck with stranded capital once again.
These guys have been burned a lot.
This explains both the 'caution' and the apparent lack of sensitivity to dollar FX changes...
But if the dollar takes a permanent step down, then mfg & related support employment will definitely increase... give it time.
So by today's bizarro stock logic the market should drop right? Since this means the Fed is less likely to cut rates further...
So the July number had an additional 25,000 jobs added while the August number had 93,000 added (the revised revisions)?
Also, interesting to note the temp jobs were down 20,000 in the report...
It jives with what I'm seeing... anecdotal evidence:
A week ago I see my college age son, he works at Mall of America doing retail... his hair is a mop on this particular day so I say to him... "Get your hair trimmed - you work in retail and you need to look 'clean'."
He stares at me with that 'oh dad' look... I go on:
"Listen, if there are layoffs you don't want to be one of them..." He cuts in:
"Dad we are not only beating last years numbers, we are beating the pumped up forecast for THIS year's numbers... blowing the doors off them. Management is already in a panic trying to hire more staff for the Holiday - they can't hire enough, fast enough..."
Now granted that's one case but follow that to my wife who just got a 10% raise and was told she will be getting more at the first of the year... they are also way over plan and have lost key employees lately (hence bumping pay to key employees).
On top of that they have been running out of materials for production and have had to hunt all over North America looking for more... they found it but are now being told there won't be any more until November (she has orders due way before that - means lotsa late hours for her & her team).
Anecdotal for sure... but I usually see recessions WAY before anyone else. I don't see it right now.
dryfly said: "...Anecdotal for sure... but I usually see recessions WAY before anyone else. I don't see it right now."
There's (more) data to back-up your observations. The ISM manufacturing and non-manufacturing indices have employment components in them, and they both showed expansion.
ISM - ISM Report - November 2009 Manufacturing ISM Report On Business®
ISM - ISM Report - November 2009 Non-Manufacturing ISM Report On Business®
S.
dryfly, when I've gone to the mall recently (luckily not often) the stores are still packed. And the restaurants are still crowded.
Everything I'm seeing suggests no recession - yet.
At the beginning of the year, I thought we could rule out strong growth (check) and a severe recession (so far, so good) - but the coin flip was between slow growth and a mild recession. I've been leaning toward recession all year - and I still think that is the way the coin will fall ... but other than shorter wait times at the restaurant, I hope we pull a mid-cycle slowdown (although this is already the ugliest mid-cycle ever).
Best Wishes and keep the stories coming!
--
"Everything I'm seeing suggests no recession - yet."
Two things I am fairly certain about you, CR:
I know that you try your best but your best wouldn't be good enough when it comes to recession forecast and housing demand. Only time will tell which one of us is right on these two issues.
Best regards,
Jas
I predict that when the next recession occurs, Jas Jain will have predicted it several months in advance. Of course, that's the benefit to having predicted a recession every month for the last 4 years.
"1. You will not predict a recession until the economy is in a recession (that is a hallmark of being an economist)."
The mark of experience in any trade. Sweeping predictions are for ameteures. Too dangerous.