Friday, February 5, 2010

Morning Update/ Market Thread 2/5

Good Morning,

Equities were substantially lower overnight but then began climbing in the early morning hours (cough, cough) and then the jobs report came out and sent futures climbing back up to about level as I type. Below is a 60 minute chart of the DOW and 5 minute of the S&P:

The dollar is close to level, bonds are close to level, oil is up slightly, and gold is down a little more.

The headline Unemployment Rate fell to 9.7%, if you can believe that, while the number of people losing their jobs was only 20,000 during the month of January, if you can believe that. Let’s just start with Econoday’s spin, note all the revisions!
Today's employment report had conflicting trends between the payroll numbers and the household survey. Although the unemployment rate fell unexpectedly, payroll jobs continue to contract. Nonfarm payroll employment in January fell 20,000, following a revised 150,000 drop in December and revised gain of 64,000 for November. In the previous employment situation report, December showed an 85,000 drop and November rose 4,000. However, today's report contains annual revisions and they were down significantly. The December payroll decrease fell short of the consensus forecast for no change in payroll jobs.

Probably the biggest positive in the report was another gain in temp help-up 52,000 after a 59,000 boost in December. This is often a leading indicator for permanent hiring.

From the household survey, the unemployment rate declined to 9.7 percent from 10.0 percent in December. The household survey for January 2010 reflects updated population estimates.

Wage inflation in January edged up to a 0.2 percent increase, following a 0.1 percent gain the month before. The median expectation was for a 0.2 percent gain in January. The average workweek rose to 33.9 in January from 33.8 in December.

Today's report, from the payroll survey, shows the economy weaker than previously believed due to downward revisions from annual updates. Also, January contracted despite the startup of the hiring of temporary Census workers. One temporary factor that could reverse next month was a sharp drop in construction-75,000 for January. This may have been weather related and may reverse and add to February. Overall, the labor sector is still struggling as employers are reluctant to hire.

Below is the full Employment report from the BLS:

Unemployment - January

Notable was the number of jobs lost in construction, at 75,000 for the month and 1.9 million since December of ‘08! Oh yeah, there’s jobs being “saved” right there. The Government added 33,000 jobs including 9,000 census workers. There’s a lasting future economy. The number of people counted as being in the civilian population fell slightly and the civilian population ratio was about flat.

Please go to page 5 and 6 of the above report and you will find discussion and tables of the annual revisions. While they present the table, they don’t bother to add up the revisions, but I did… and the number is 617,000 more jobs were lost than they originally reported! This is largely due to their use of a totally false “Birth/ Death model” for businesses. Below is a picture of their revision table, note only one month was positive, and in the average month, jobs were overestimated by 51,400 people!

But wait, reading their verbiage we find:
The November and December 2009 revisions also reflect the routine incorporation of additional sample receipts into the November final and December second preliminary estimates. The total nonfarm employment level for March 2009 was revised downward by 902,000 (930,000 on a seasonally adjusted basis), or 0.7 percent. The previously published level for December 2009 was revised downward 1,390,000 (1,363,000 on a seasonally adjusted basis).

Only 1.4 million in adjustments? Whoa.

Below is the “Alternative Table” where we can look at U-6 unemployment rate, both seasonally and non-seasonally adjusted. This rate is the closest to how unemployment used to be tracked. Thus, if you are comparing eras, like now to the Great Depression, U-6 is what you should be using… that or John William’s numbers. You can see that the not seasonally adjusted U-6 jumped from 17.1 to 18%! While miracle of miracles, the seasonally adjusted rate fell from 17.3 to 16.5%! The gap between seasonally adjusted versus not seasonally adjusted was running at .2%, and now the gap is 1.5%... to be fair, January of 2009 the gap was 1.4% reflecting large seasonal adjustments for this time of year.

Next is John William’s chart showing his alternative which is now running close to 22%. That’s a long way from 9.7%, and frankly, if I’m going to trust one number or the other, it’s going to be his. This chart will automatically update itself as John updates his data:

Chart of U.S. Unemployment

Stocks are having problems staying positive, it is obvious that wave 3 down has begun. We may have finished (1) down of 3 of 1, or should be close at any rate. That means we should get a small degree wave 2 somewhere followed by wave 3 of 3 of 1 down which should be very powerful.

McHugh shows a convoluted Head & Shoulder’s top with an SPX target of about 970 to 990. It’s a little too malformed for my taste, so I won’t show it to you, but what I do know is that there is a large volume void down in the 960 area and prices get drawn towards these voids. So, let’s just call the target range for now 960 to 990 and then we’ll have to see what happens. That’s a long way down off the top, I’m sure that the bulls will be saying, “it was a healthy correction, now we’re headed to new highs!” And we’ll bounce some gaining their confidence and then Jim Creamer will come on saying that we’re going to the moon, and the next day we will put in a lower high to kick off the larger wave 3 down of C. Just sayin.

Man, you have got to love those seasonal adjustments and revisions… kind of leaves you with a little less confidence, eh? Like maybe we have become a Zombie Nation?

The Zombies – Time of the Season: