The Employment Report on Friday was bad – but it wasn’t the unmitigated disaster that the consensus seems to have spun it into. It is true that there were no bright spots. It is true that the net number of new jobs added was worse than consensus and indeed worse than some of the more pessimistic expectations. But 142k new jobs is not a recessionary collapse (yet). Let us remember that one or two months every year fall below that figure (see chart, source Bloomberg).
Market Analysis & News From Around the Interconnected Global Buzz Factory
- We Believe in Emerging Market Valuations –Wisdom Tree Blog
- A Possible Revenge of the Efficient Market Hypothesis –Price Action Lab
- How Much Higher Wages Are Costing Walmart –Bloomberg
- Government Employment in Context –FRED Blog
- Macro’s One-Way Street –Market Anthropology
- The One Percent –Jeff Saut
- Economics of Information Overload… –Conversable Economist
- China’s Known Unknowns –Dr. Ed
Consumer Sentiment Still Forecasts Employment Growth
May 15, 2015
The unemployment rate has not finished falling. That is the message from the data provided by the University of Michigan’s Survey of Consumers.
In this week’s chart, I am comparing an inverted plot of the US civilian unemployment rate to the UMich sentiment data. It makes complete sense that how consumers are feeling should have a strong positive correlation to the unemployment rate. In a recession, when more Americans are out of work, it would be natural for consumers to be bummed out. So to find a relationship between them is not much of a surprise.
Market News and Analysis From Around the Intertubes
- March Payrolls Tank –NFTRH.com [biiwii comment: incl. our thoughts and those of respected geek Calculated Risk]
- When the Employment Report Has Been Released on Good Friday –QuantEdges
- Why the Biotech Sector (IBB) is “Distributing” Pain –See it Market
- Why You Should Read Louis James of Casey Research –IKN
- The Great Titration Continues –Market Anthropology
- You’re Really Bad at This –Josh Brown [biiwii comment: ha ha ha… i love this guy]
- Ilargi: Warren Buffett is Everything That’s Wrong With America –Naked Capitalism
- On its Own, Declining Profits Are Not a Risk to Equities –Fat Pitch
- Is the Fall in the EUR Over Done? –GaveKal [biiwii comment: the monthly chart, which finally hit the lower big picture trend channel line already answered yes]
- Is US Economy Coming Out of Ice Patch? –Dr. Ed [biiwii comment: no doc, not yet]
- Price Deflation, Asset Prices and Threats to Growth –Conversable Economist
- Late to the Party Again, Apple Gets Added to the Dow –Barry Ritholtz
- An Inflection Point for Bonds? –Dr. Ed
- Stranded in NYC –Jeff Saut
- Why the Prime Labor Force Participation Rate Has Declined –Calculated Risk
Guest Post by Elliott Wave International
The “Big Lie” About the US Jobs Picture
Some 30 million people are either out of work or severely underemployed
Editor’s note: You’ll find the text version of the story below the video.
The financial media has recently featured stories with an upbeat outlook for the U.S. economy.
For example: The economy is on track for “the fastest growth in a decade” (Associated Press), and “Experts expect jobs aplenty in ’15” (USA Today).
This upbeat tone is related to December’s U.S. jobless rate of 5.6%, its lowest since June 2008.
This segment is excerpted from this week’s Notes From the Rabbit Hole, NFTRH 329, and was originally titled…
Does the US Economy and Stock Market Need Manufacturing?
The ISM PMI reports for December and January showed deceleration in line with our view that a persistently strong US dollar would begin to eat away at US manufacturing, exporters and other companies that depend on significant foreign business. But in an age where investors will bid up Twitter* (with its forward P/E of 141 and 30B market cap to 1.2B revenue) by 16% in a day, are we returning to the old days of ‘PE’s don’t matter’ with the hook or tout being ‘it’s all about ad revenue’?
One analyst quoted in the WSJ: “Given FB’s (Facebook) history… we think that investors do not want to miss out on another social stock run”
Is this type of mentality not reminiscent of the late 1990’s? Twitter, like Facebook, is implementing strategies to monetize all those short attention spanned eyeballs, but 30B?
As you will see by the charts in this week’s report, despite elevated general forward valuations (graph below) and ridiculous individual valuations like Twitter and so many other fad stocks, the bull market’s technical situation remains unbroken and generally bullish, although the volatile ‘swing’ market theme remains intact for now.
* Personally, I deleted my Facebook account because after all, who really needs to see yet another picture of someone’s super bowl chili or winter vacation in the tropics? I use Twitter as a button at the websites. Make post, press button… done. Another tweet the world really doesn’t need. But it is a handy little tool.
Back on topic, here is the current forward P/E level of the US stock market (graph source is factset.com, by way of the free ‘Daily Shot’ email service from soberlook.com). They each cover relevant global macro data and are recommended.
P/E is as stretched as it gets for US corporations. But in a world where deflation is the key theme, capital flows have well, flowed into US asset markets. On a risk vs. reward basis, the view continues to be that certain global areas are more favorable than the US for new investment. As an example, we have been noting that Germany, as an exporter operating behind a weak currency and QE-inclined Central Bank, could be a destination for favorable investment vs. the US in 2015. Deutschland factory orders are improving.
- The Charlie X Solution –Tim Knight
- A 2015 Comeback for the Middle Class? –Josh Brown
- A Little Fear About the ‘Fear Index’ –Opp ID’d
- Central Bank EUR Reserves Plunge –GaveKal
- Mixed Employment Report –Dr. Ed
- Demand factors in the collapse of oil prices –Econobrowser
- A Closer Look: Commodities –Alhambra
Never mind that the US increased employment by 252,000 in December and unemployment sagged to 5.6%. The stock market moves to its own beat and doesn’t care much about the particulars in the ‘Jobs’ report or the media’s interpretations of its details.
The market only cares about how those particulars affect the money creation that has kept it in operation since 2009. Here are two graphs from NFTRH 324…
On the Monetary Base view, Post-QE Base dropped, the S&P 500 popped (Santa seasonals)… then dropped… then the Base popped after the S&P 500 dropped and then the S&P 500 popped, then it dropped (to fill the gaps) and popped again; but today it dropped.
The Fed Funds view (ZIRP is into its 6th year now) simply shows box 1 (black) and box 2 (red). Box 1 wants to see box 2 remain very thin and horizontally rectangular while it continues to grow very tall in a vertically rectangular sort of way.
Economics 101, Wonderland style.
The worry in the ‘Jobs’ details was supposedly in wage stagnation. The mainstream thinking being that wage growth would spur organic economic expansion as all those consumers get out there and gobble up the economy’s products.
But it can be argued (by the second chart above that it is the lack of wage growth that can cause fretting by policy makers and an avoidance of any moves that would threaten box 2. Put another way, if wages start growing and the things that mainstream economists call inflation start to get out of hand the pressure would mount – amidst the strong economic backdrop – to get on that rate hike cycle and not fall behind the curve.
So today’s reaction by the stock market is not unexpected by this individual participant, because I was only looking for a gap-fill bounce with no need to read more into it than that. But the lack of wage growth is not a reason why the stock market should be going down. The jumpiness in yield spreads could be among them, however.