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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (22557)	2/1/2005 5:20:53 AM
From: Chispas	Respond to of 116555

HANDICAPPING FRIDAY'S REPORT ON EMPLOYMENT ... ... ... ... .... By JOHN CRUDELE February 1, 2005 -- WALL Street is proba bly expecting too much from Friday's employment report. Experts think the economy produced over 200,000 new jobs in the first month of 2005. But for that to have happened the tally must overcome the massive assumption that the government makes for companies it believes have quietly gone out of business in January. In January of 2004, for instance, the Bureau of Labor Statistics deducted 321,000 jobs from its survey to account for these business failures. The impact of these assumptions is never as great as during January. After all the adjustments were made in January 2004, the government reported very disappointing job growth of just 112,000. Without the assumption that dying companies were causing jobs to be lost, the job growth figure for the first month of 2004 would have been a very healthy 433,000. Needless to say, newspaper headlines that the country was starting out 2004 with only new 112,000 jobs drove the Bush administration nuts. Treasury Secretary John Snow wasted countless speeches explaining that job growth would improve. And it did — just as soon as the government changed its assumptions in spring. That's when the Labor Department began adding large numbers of jobs to its count for new companies that were being formed. Suddenly the labor market looked to be booming. But just to make everyone a little crazier, the birth/death assumptions cooled toward summer and the official labor figures were suddenly weak enough to become an election issue. January and July are the two months of the year in which the Bureau of Labor Statistics believes that there are more companies going out of business than being formed. For the economy to overcome these assumptions, there would have to be a sudden boom in hiring in the post-Christmas season when — in fact — a lot of employers are downsizing. Friday's announcement that the nation's gross domestic product slowed in the fourth quarter of last year also doesn't leave much hope for a January job boom. A disappointing jobs figure on Friday would be no more believable than all the good numbers that came out last spring. I'm afraid this is simply a case of statistics disconnecting with the real world. The government would really like all of its statistics to be viewed over longer periods of time. In fact, when all the final revisions are done — years later — the numbers are probably close to reality. Ah, but that wouldn't permit Wall Street to place bets on numbers like the one coming Friday. So, how should you wager on Friday's number? If you think Wall Street is right, perhaps you should put a few bucks into the stock market. Despite all the optimism you may have read (elsewhere), stocks have been beaten down in January. And while that might be a bad omen for the rest of the year, the market could rally for a while on a good employment figure. But big job growth could hurt bonds and cause interest rates to rise. If I'm right, the reverse will happen Friday. Weak job growth — even if it's based on faulty assumptions — will cause stocks to decline more (because the economy will look weaker than expected) and bonds to rise (because rates will remain at today's incredibly low levels or drop some more.) jcrudele@nypost.com nypost.com