Tomorrow's unemployment report. This commentary argues that we could have a positive surprise. This site has excellent intraday commentary. More geared for the bond market but good info for equities too.
bondtalk.com
9:42 AM
Fundamental and technical factors could combine to produce a much stronger-than-expected payroll report tomorrow. The consensus is for payrolls to post a decline of 50k workers, but the combined factors could easily push the payroll figure into positive territory with a gain of 100k to 200k within the realm of possibility. The fundamental basis for a gain in the payroll data is the recent stabilization in the economy. In the labor market, the recent decline in jobless claims is clear evidence of this stabilization. Importantly, in the state-by-state explanation for the decline in claims, states have been indicating that a decline in claims filed by persons employed in the manufacturing sector is the main reason that claims have fallen. This is important because average monthly job losses in the manufacturing sector (110k) over the past year actually exceeded the monthly average of declines in overall payrolls (90k). Thus, if the tide of job losses in the manufacturing sector were to abate, the overall payroll numbers would get a lift. The jobless claims data, and the state-by-state data in particular, suggests this is now a plausible scenario. A record plunge in business inventories makes this scenario even more plausible. Moreover, nearly 600k less persons are receiving jobless benefits now than was the case at the peak in late October. The drop suggests that labor demand has gained. Another basis for an improvement in the payroll data is the rapidity at which businesses recently cut their payrolls. The rapid response suggests that the U.S. labor market has become increasingly flexible, resulting in job cuts that are now apt to be deeper and more swift than in the past. This means that job losses are more likely to be concentrated over short periods of time than be drawn out, as was seen in 1991 and 1992 when the jobless rate did not peak until 15 months after the end of the last recession. The flexibility of the U.S. labor market stands in stark contrast to Japan where job losses have be drawn out over a decade and which have arguably been far too small relative to the size of the adjustments needed there. A technical basis for a stronger than expected report tomorrow relates more to the recent sluggish pace of the jobs market than to positive fundamentals. Specifically, because there was less seasonal hiring than usual last quarter, particularly in the retail sector, there will therefore be less seasonal layoffs. Seasonal factors will therefore overcompensate for expected seasonal layoffs and drive the tally upward. In the retail sector, not-seasonally-adjusted hiring was just 450k last quarter, fully 300k below the average of the previous four years. That means there are as much as 300k less workers that will have been let go in January, a number that seasonal factors will miss. Seasonal factors "expect" retail job losses to total about 1 million jobs in January, meaning that if the job loss were to be just 700k, retail jobs would post a gain of 300k and thereby lift the overall number. This technical phenomenon appears likely to occur but the impact may be spread over the January and February payroll reports. Nevertheless, the payroll data is likely to get boosted and thereby add to the positive spin on the economy. |
