Friday, September 3, 2010

Morning Update/ Market Thread 9/3

Good Morning,

Equity prices are jumping on the Employment Report where the headline number was an increase from 9.5% to 9.6%, with a minus 54,000 jobs print. The rate was inline with expectations, but the number of Private Payroll jobs “created” was better than expected at 67,000. The SPX is spiking over 1100 on the release, bonds are sinking, the dollar is sinking, oil is higher and gold is lower.

Below is the entire Employment report from the BLS, they claim that the employment situation is little changed from July to August with the labor participation rate largely unchanged:

Employment August

Let’s see the Econospin, and then we’ll dig deeper:
Highlights
Overall payroll employment fell for the third straight month but there was a moderate gain in the private sector. Also on the positive side, wages were up. Overall payroll jobs in August slipped 54,000 after falling a revised 54,000 in July (yes, they are the same) and contracting 175,000 in June. The August overall number was less negative than the consensus forecast for a 90,000 decrease. The June and July revisions were net up 123,000.

A big part of the latest month's weakness was seen in the government sector, which still includes layoffs of temporary Census workers. Government jobs dropped 121,000 after falling 161,000 in July. In contrast, private nonfarm employment continued to rise, gaining 67,000 in August, following a revised boost of 107,000 the month before. Analysts had called for a 40,000 advance for private payrolls in August. July had previously been estimated to be a 71,000 increase.

Average hourly earnings improved to 0.3 percent from up 0.2 percent in July. The August number topped the market estimate for a 0.1 percent gain. The average workweek for all workers was unchanged at 34.2 hours in July. The market forecast was for 34.2 hours.

Turning to the household survey, the unemployment rate came in at 9.6 percent, compared to 9.5 percent in July. The consensus projected a 9.6 percent figure for August.

Overall, today's report shows that the economy is not going back to recession. Still, growth is less than robust. For now, it appears to be a growth recession (less than long-term trend), but not an outright recession. The bottom line is that the private sector is holding up better than expected.

On the news, equity futures jumped sharply and interest rates firmed.

Not going back into recession? LOL, that’s a good one with a negative overall job print and a 16.7% U6!!

Here’s the deal, this report is not as bad as many were expecting, but it IS NOT great either. It certainly does not justify the action I’m seeing now in the market, that tells me that it could very well be an exhaustion move – an opportunity. Let’s dig deeper…

Below is the Alternate table showing U6, the number that is most like how it used to be reported. The seasonally adjusted U6 rose from 16.5% to 16.7%. Note how the percentages increase when the employment population ration stays unchanged:



When I went to find the Birth/ Death model adjustments, the data surprised me at how large it was – this is blatant game playing from my perspective, as there was a 115,000 add for small business jobs that were supposedly created, versus July’s 6,000! That is a rise of 109,000 from one month to the next! Bet you didn’t know so many small businesses created jobs just as school is about to start back up. When looking at the data from last year (top table), you can see that the same games were played in the same months last year. But then look at September of last year, it was a zero. If they play fair (lol), it should be roughly zero next month, and that means we are setting up for the next report to disappoint:



As a reminder, here is John Williams data, still pushing nearly 22%:



The supposed “growth” in private sector jobs is nothing but pure fudging of the numbers, the Birth/ Death model alone erases all of those supposed jobs. The government is laying off more than just Census workers, 121,000 last month in all – that is what happens when you hit the wall in deficits and the psychology shifts from stimulus to austerity.

The fact is that jobs are not being created and it takes very large numbers of them just to break even with population growth. This report is not good, buy the news at your own risk. Look for next month’s report to disappoint.

Lately there has been the RIDICULOUS notion in the markets that BAD data is good because it will prompt government intervention. If that’s the case, then a report that is taken as good should lessen the chance for more stimulus. Yet the HFTs are all running on one side with this, it’s a very dangerous prospect, again an opportunity is rapidly approaching.

There is more economic data coming this morning (non-manufacturing ISM), the day is young.

Below is a 30 minute chart of the SPX with the channel I was tracking. Yesterday finished with a small rising wedge, we have overthrown that now, but it could still be valid and this throwover may be finishing off this wave. We have filled the 1094 gap, and the only gaps left are above at 1120ish and now big gaps below us (look at the NDX). The market is WAY overextended on the up side, we should see a significant pullback soon. If the price remains over 1100, then there certainly could be more upside, but I think that once this report is fully digested some sort of correction will occur.



On the /ES (S%P futures), you can see that the spike took us to the top of the channel:



Hey, with reality reporting like that, it’s a good thing I ain’t no Senator’s son… as far as I'm concerned, this report and the media's reaction to it only further erode confidence in our government - they have bankrupted our nation in an attempt to spark the economy, and they have failed except in their attempts to massage and manipulate data.