March payrolls: expect ~250,000 gain, 8.2% unemployment

- by New Deal democrat

When all is said and done, employment and income are the two most important measures of the economy. If there are more jobs and better incomes available to a substantial majority of society, the economy is working. When jobs and income are in decline, the society is in serious trouble. While the economy bottomed close to three years ago, progress on both fronts, while real, has been disheartening in comparison with a truly healthy economy.

Still, there has been better progress on the jobs front in the last few months, and it looks like March will be no exception.

While the BLS has rejiggered its seasonal adjustment for initial claims, that hasn't meaningfully affected the trendline with job growth. They may do the same this Friday to payroll numbers. If so, the following discussion applies to the pre- rejiggered figures.

First, let's look at the scattergraph of initial claims vs. private payrolls. Since the average initial claims in March was about the same as for February, I expect a similar number, in the ballpark of 250,000 private sector jobs. If the trend from the last year holds true, February will also be revised upward significantly, also to about 250,000.



Remember, if we were on the cusp of entering an economic contraction, new jobs offered would decline before layoffs increased, meaning the new entries on the scatterplot would shift substantially to the left. Should March come in under 200,000 (again, pre-rejiggering the seasonal adjustments), and should February also be revised down under 200,000, that would be a bad omen. Conversely, if both come in, pre-rejiggering, in line with the established trend, that would suggest that the recovery will continue for near future. With the American Staffing Index of temp jobs rising to its best level since the recession in the last month, and Online Help Wanted ads rising to their highest level ever, a continuation of the trend is the most likely outcome.

The biggest candidate for a positive surprise is the unemployment rate. Had there not been a surge of re-entrants to the labor force last month --i.e., had the labor force remained steady -- the unemployment rate would have dropped to 8.0%.

This is the graph of the initial jobless claims rate, (blue) compared with the unemployment rate (red), updated through February:



Keep in mind that the rate of initial claims leads the unemployment rate, and has since records started to be kept.

Now here's the close-up for the last 3 years (with initial claims rebased to show the similarities more clearly):



With the rate of initial claims continuing in March at its February rate, expect the unemployment rate to continue to drop. A decline to 8.2% in the U3 unemployment rate looks likely, and a drop to 8.1% well within the range of possibility.

Read More

Greece's Oil Shock

In February I wrote that Hellenic (Greece's main oil refiner):

"are currently negotiating for supplies of oil from elsewhere, any admission that their supplies have been cut will negatively impact those negotiations and cause panic buying in Greece."

Today Hellenic have announced that it has suspended purchases of Iranian crude in April, as approaching sanctions on Tehran have made banking payments virtually impossible.

This of course means that its negotiations for reasonably priced supplies for Greece from elsewhere have just been torpedoed.  

Hardly good news for the imploding Greek economy!

Read More

Morning Market Analysis: BRIC Weakness

The Brazilan market ETF hit the 70 price level at the beginning of March, but has been moving lower since.  Prices are now in the 65.5 area (about 8% lower), and are right above support established in late October.  Momentum is declining, as are the shorter EMAs.  Prices are also right at the 200 day EMA. 

The real ETF has also dropped moving from the 21.6 are to 20.25 -- about a 6.25% drop.  Prices are right at the 61.8% Fib level and have been consolidating here for the last half of March.  The EMA picture shows all three shorter EMAs (the 10, 20 and 50) declining. 

The Brazilian yield curve is still pretty steep -- there's about a 200 basis point differential between the short and long end.  There is a very slight inversion at the short end of the curve -- the 3 month is 9.19 and the six month is 9.03.  Also remember the Brazilian Central Bank has been dropping interest rates:

The Russian market is in a very similar situation.  After hitting a high just above 33, prices have been drifting lower and are currently at 31.28 -- a drop of about 5%.  The big issue with this chart is that prices are right at the 200 day EMA with declining momentum but rising volume stats.

The Indian market is in the middle of a downward sloping pennant pattern which is consolidating prices. Prices have moved from the 62 level to 57.51 -- a drop of about 7.25%.  Prices are also right below the 200 day EMA and the shorter EMAs are dropping.  On the good side, the MACD is about to give a buy signal and the volume indicators are rising.

The Chinese market is consolidating in a downward sloping pennant pattern, much like the Indian market.  After rising to just shy of the 41 price level, prices have retreated to 37.09 -- a drop of nearly 10%.  The MACD is declining and the A/D and CMF are rising.

The BRICs are all moving lower.  No one is crashing; but traders are clearly at minimum taking profits from recent rallies and reassessing their respective opinions about these markets. 

Read More

FSA Grows Some Balls

In a rare display of balls, the soon to be disbanded FSA fined Ian Hannam, the Chairman of Capital Markets at J P Morgan Cazenove, £450K.

For good measure the FSA also published their decision:

"The Financial Services Authority (FSA) has today published a Decision Notice for Ian Hannam, the Chairman of Capital Markets at J P Morgan Cazenove. The Decision Notice indicates that the FSA has decided to fine Hannam £450,000 for market abuse.

Hannam has referred the matter to the Upper Tribunal (the Tribunal) where he and the FSA will each present their case.  The Tribunal will then determine the appropriate action for the FSA to take. The Tribunal may uphold, vary or cancel the FSA’s decision.  The Tribunal’s decision will be made public on its website.

In the Decision Notice dated 27 February 2012, the FSA set out its decision to fine Hannam for two instances of market abuse (improper disclosure).  In the FSA’s opinion, Hannam disclosed inside information in two emails sent in September and October 2008 to a prospective client.  The emails contained inside information relating to Heritage Oil Plc (Heritage), an existing J P Morgan client for which Hannam was the lead adviser. 

The September email contained information about a potential offer for Heritage and the October email contained information about a new oil find by Heritage.

The Decision Notice states that the FSA accepts that Hannam did not set out to commit market abuse but considers that Hannam’s failings were serious in view of his experience and senior position within J P Morgan. 

The FSA believes that the size of the proposed fine reflects the serious nature of the market abuse and should act as a deterrent to other market participants. 

Tracey McDermott, acting FSA director of enforcement and financial crime, said:

“Inside information is extremely valuable and must be handled with care to ensure that it is properly controlled and that appropriate safeguards are observed.  This applies to all market participants but is particularly important for senior practitioners who will regularly interact with a wide circle of contacts”.

Hannam is disputing the fine. However, he has today resigned from JP Morgan.

Read More

Bondad Linkfest

1. UK manufacturing increases (FT)
2. Ireland tax protest gaining steam (FT)
3. Japan's Tankan survey is negative (FT)
4. Stocks enjoy best 1Q in 14 years (FT)
5. Crop report highlights (Agrimoney)
6. Will stocks trade sideways into the spring (Marketwatch)
7. Consumer spending increases, incomes, not so much (Marketwatch)

Read More

Republican Economic Talking Points Are Baseless and Devoid of Fact

First, I want to apologize in advance for this overtly political post.  I hate politics and frankly, have a fair amount of disdain for both political parties.  While I used to be a Democrat, I was basically told I was "too centrist" or "pro business" for their liking and am now an independent.

And while I try and keep politics out of this blog, there are times when it becomes impossible for me to keep my mouth shut.  When the talking points of one side of the political blogsphere are this unhinged from reality, I feel forced to speak up and explain why these points are completely baseless when compared to the underlying data.  By unhinged, I mean this:  

THERE IS ABSOLUTELY NOT ONE BASIS IN FACT FOR ANY OF THE FOLLOWING TALKING POINTS.  IN FACT, THE UNDERLYING DATA INDICATES THE EXACT OPPOSITE IS HAPPENING:

Obama is a Socialist and we are becoming a socialist country: no. If this were true, we'd see a continual increase in government spending influencing the economy.  However, we are not, as evidenced by the following data from the Bureau of Economic Analysis:

The above chart shows the percentage contribution of non-defense federal spending and state and local government spending to GDP growth for the last three years.  First, state and local government spending has actually been subtracting from growth for the 10 out of 12 quarters -- hardly a takeover.  And while government spending did add to growth, the largest contribution to growth as a shopping .4, when the entire economy grew 3.8%, meaning government spending accounted for a whopping 10% of all GDP growth.

In addition, if we were in the middle of a socialist takeover, we'd see an increase in government employment.  In fact, we've see the exact opposite occur -- government jobs have been decreasing since 2009, with the exception of the census hiring in 2010.

If we were really seeing a socialist takeover of the country, this chart would look far different.  Or, put another way:




Businesses have been frozen in their tracks because of government regulation:  No.  If this were true, we'd see absolutely no business investment.  In fact, the exact opposite has been true:

The above chart shows the Q/Q percentage growth in investment in equipment and software.  Yes, we do see a contraction for the first two quarters.  However, we see continual growth for the last 10 quarters.  In addition, we see a few of those quarters clocking in at very strong growth rates.

The tax burden is too high and is choking growth: no.  Actually, the tax burden we currently have is one of the lowest in the last 60 years:

The above chart is from Felix Salmon of Reuters, who noted the following

• Federal taxes are the lowest in 60 years, which gives you a pretty good idea of why America’s long-term debt ratios are a big problem. If the taxes reverted to somewhere near their historical mean, the problem would be solved at a stroke.
• Income taxes, in particular, both personal and corporate, are low and falling. That trend is not sustainable.
• Employment taxes, by contrast—the regressive bit of the fiscal structure—are bearing a large and increasing share of the brunt. Any time that somebody starts complaining about how the poor don’t pay income tax, point them to this chart. Income taxes are just one part of the pie, and everybody with a job pays employment taxes.
• There aren’t any wealth taxes, but the closest thing we’ve got—estate and gift taxes—have shrunk to zero, after contributing a non-negligible amount to the public fisc in earlier decades.

We (Republicans) care about the deficit: no.  If that were true than the Republican candidates would have proposed reasonable plans to lower the deficit.  In fact, the exact opposite is true.  From the Christian Science Monitor:

According to a new analysis from the non-partisan Committee for a Responsible Federal Budget, none of them would. At least not through the next decade. In fact, compared to what the fiscal watchdog calls a realistic budget baseline (that is, if the government continues on the track it’s on today) all of the GOP candidates, save for Ron Paul, would make matters worse.

Rick Santorum and Newt Gingrich would make things far, far worse. Mitt Romney’s tax and spending plan wouldn’t bend the debt curve very much one way or the other. But, according to CRFB, if he doesn’t find a way to pay for his latest plan to cut tax rates by 20 percent Romney would significantly increase deficits and the debt as well.  

Except for Paul, each of the candidates has the same problem. They have enthusiastically promised to cut taxes in very specific ways—sometimes by vast amounts. But when it comes to offsetting spending reductions or cuts in tax breaks, they mostly offer little more than platitudes.

A few numbers: The group figures that if government policy stays on track, the national debt would grow from 78 percent of Gross Domestic Product today to 85 percent in 2021. Paul would pare that to about 76 percent.

With Romney, the debt would change little from the CRFB baseline but only if he finds tax hikes to offset those 20 percent rate cuts. He has not said what those revenue increases would be, and without them, he’d add about $2.6 trillion to the debt and drive it to about 96 percent of GDP. Santorum would increase the debt by $4.5 trillion to 104 percent of GDP. Gingrich would add $7 trillion to the debt and drive it to 114 percent of GDP.

All of the plans, save Ron Pauls, would increase the deficit.  In other words, taking care of the deficit is in fact the last thing on your mid.

Over the last few years, we've see some surprising studies regarding conservatives.  The latest  is that educated conservatives trust science less and less:

Confidence in scientists has declined the most among the most educated conservatives, the peer-reviewed research paper found, concluding: "These results are quite profound because they imply that conservative discontent with science was not attributable to the uneducated but to rising distrust among educated conservatives."

 "That's a surprising finding," said the report's author, Gordon Gauchat, in an interview. He has a doctorate in sociology and is a postdoctoral fellow at the University of North Carolina at Chapel Hill.

Put another way, the profession that relies on data, evidence and critical thinking is anathema to modern Republicans.  That's not very encouraging. 

In addition, only 6% of scientists consider themselves Republicans:

A profession that deals with facts and data wants absolutely nothing to do with one of the major political parties in the US.  Let that statement sink in as you let it's ramifications manifest.  It's a very scary, 1984ish type of picture that emerges.

For me, the above two data points are by far the scariest, as they show a truly troubling development: data, facts and reasoning are now shunned by a major political party.  At some point in the last round of Republican debates, a questioner asked who either didn't believe in evolution or did believe in creationism.  All candidates raised their hands.  That fact alone should disqualify all for any elected office, from president down to dog catcher.  Think about what these people said with that statement in relation to the modern world that is dominated by technology.  Do any of these candidates want to regularly see a doctor who doesn't believe in natural selection or the scientific method? 

I was originally educated by Jesuits (St. Xavier High School, Cincinnati, Ohio, Go Bombers).  There is one thing they ingrained in me:  Look at the data -- as in facts , as in the hard and objective reality to see what it says.   And yet, one party is now saying, "I don't believe in data as we know it."  That explains their continual reiteration of economics claims which completely ignore reality as expressed by economic numbers. 

The above data points indicate that fundamental tenants of the current Republican economic talking points are false. Government spending is in fact subtracting from growth and government jobs are falling.  This indicates we're not a socialist country.  Businesses are still investing at a strong clip, indicating they're not frozen in their tracks.  The overall tax burden is in fact low.  And no one in the Republican field has put forward a deficit reduction plan that has an ounce of credibility.  In short, Republicans aren't even on the same planet when it comes to the economy. 

The second set of data regarding conservatives and science indicates that data does not mean anything to Republicans.  And that is what has truly terrifying implications for the formulation of policy at the national level.  When one player has absolutely no use for data, it's impossible to negotiate in good faith.

Read More

Greece's Deathmarch Continues

The Foundation for Economic and Industrial Research (IOBE) reports that the Greek economy will continue to shrink (5%) this year, and that unemployment is at 20%.

Read More

Morning Market Analysis

To review my view of the market:

I am concerned about the rally at this point for the following reasons.  The Chinese market is dropping; it is not a precipitous drop, but it is clearly moving lower.  It is taking the Asian rim with it.  The reason for the FXI drop is a slowdown in Chinese economic data.  In addition, the EU region is also slowing, and is probably in a shallow recession.  Finally, Brazilian Russian and Indian markets are also moving lower, making the US the only equity market rallying.

The question becomes this: can the US enter a period where the economy is self-sustaining?  That's something I'll look at throughout this week.  However, let's take stock of various indexes:

The 30 minute QQQ market sums up the equity price action for the week.  Prices rose in the earlier part of the week, but fell starting on Wednesday and closed the week out weakly.  Overall, prices rose from the 67.2 level to the 68.4 level -- a gain of 1.78%, but fell to the 67.5 level.

The 60 minute QQQ chart shows a few important trends.  First, prices broke an important uptrend last week.  Secondly, momentum (the MACD) is dropping.  Third we see a price cluster around the 67 level, indicating this is an important area of technical support.

The daily QQQ chart shows that prices are still firmly in an uptrend.  The EMAs are bullishly aligned and volume is flowing into the market.  However, momentum isn't rising.  In addition, the Bollinger Bands are widening, indicating we're entering a period of increased volatility.

The Russell 2000 is still mired around the 83 price level.  Also note the declining momentum.  This is the risk based part of the market, indicating traders are concerned about risk at this time.

The transports have the same problem as the IWMs, although the transports resistance area is around the 96.5 area.

The above charts are not fatal by any stretch.  However, remember that we'd like to see a wide swatch of the equity indexes participate in a rally.  That's not happening.  Most importantly, the risk based part of the market -- the IWMs -- are struggling to move higher, as are the transports. 

Read More

Eurozone Unemployment Rises

Unemployment across the Eurozone has increased from 10.7% in January to 10.8% in February, the highest level since the Euro was imposed in 1999.

Spain leads the field, with a stonking 23.6% of its citizens unemployed!

Read More

Greece Postpones "Deadline" Again

Despite the threats and empty rhetoric from the Greek government, and others within the Eurozone, investors in Greek bonds issued under foreign law have not rolled over and acquiesced to threats; instead they have rejected Greece's attempts to restructure the debt at meetings held last week.

In 20 out of 36 meetings, bondholders either turned down the government’s proposal, adjourned the talks or failed to achieve a quorum.

What happens now?

Oh, that's easy, Greece has yet again postponed the "deadline" (from 4th April) to 18 April!

Oh, and by the way, there is a payment due today on some bonds relating to Greek railways.

Read More