Jobs Report Better than Expected

Today's Non-Farm Payrolls report showed a loss of 345,000 jobs in the month of May. Estimates were for a loss of 520,000 jobs, so the actual number came in better than expected by 175,000 jobs. Below is a scatter chart that compares the monthly Non-Farm Payrolls report number to the difference between the actual number versus its estimates since 1998. As shown, this month's report was definitely an outlier. It was still one of the weakest jobs reports over the last 11 years, but it was also the third best report when comparing actual versus estimates over the same time period.

click to enlarge

Comments

[Fighting Yoda:]

"3rd best, better than expected, could have been worse" - was today's report any of that? 9.4% is a very bad number.

Some interesting analysis on today’s report on long term unemployment rate by NYT:
“What is more alarming is the long-term unemployment rate. The government says that 4.5 percent of the work force has been out of work for 15 weeks or more. The worst previously seen — at least since 1948, when the government began counting people that way — was 4.2 percent, in December 1982.”
Put another way, 21 percent of those who are unemployed have been out of work for at least 15 weeks. That is also a record, exceeding the 19.6 percent proportion seen during the 1958 recession.
Since employment peaked in 2007, the number of total jobs is down by 4.3 percent, and the number of private-sector jobs is down by 5.4 percent. Those figures exceed the peaks since 1950 of 4.2 percent and 5.2 percent, respectively, set in that 1958 recession.
“The number of jobs over all is now down 6 million from the peak, while private-sector employment is off 6.3 million from the high.” – so as private sector is losing jobs Govt. is hiring essentially wasting money.

Jun 05 07:16 PM

[Peter Cooper:]

You just know this 13-week old rally has to be coming to an end when a leap in unemployment to 9.4% (worse than forecast) is seen as some kind of positive indicator. And what about the oil price? Surely it was the spike in the oil price last summer than blew financial markets up in the fall? Higher commodity prices are not good news for a struggling recovery, although that is just an illusion, see:
arabianmoney.net/2009/.../

Jun 06 12:56 AM

[Chandragupta:]

Comparisons with 'estimates' is meaningless - those who 'estimate' are just extrapolating from the recent past with minor tinkering here and there. One has to look at the absolute number of unemployed and see whether this number is going up or down. By that measure, I don't see any improvement.

Jun 06 03:21 AM

[eieinli:]

..."better than expected!" Wowwee!!! Next month I'll predict a million job loss; if we only lose 1/2 million, it's soooppeerr!!! The spinmeisters never quit; they all think we're born yesterday. What a crying shame that we have reached this point.

Jun 06 09:15 AM

[Meltdownman:]

The figures presented by the government were all lies. They did their usual tricks by changing the statistical methods in counting the numbers (similar to FASB market to market rules they changed until November):

Jobs Rumor Refuted

“The rumor was false,” U.S. Labor Secretary Hilda Solis told reporters in a conference call, helping spur a 1.4 percent rebound in the equity benchmark before the declines in banks and commodity shares pulled it lower.

The Labor Department adjusts its count of jobs lost for a so-called birth-death model that estimates businesses formed or folded during the month and therefore not counted in its survey. The model increased today’s report by 220,000 jobs, a “statistical fluke,” according to Miller Tabak & Co. equity strategist Peter Boockvar. The unemployment rate increased to 9.4 percent, the highest since 1983.

“There are, as always, questions surrounding the birth- death model estimations and as that talk continues, people are focusing in on the unemployment rate and the other negative parts of the report,” said Dan Greenhaus, equity analyst at Miller Tabak, in an e-mail.

This is exceptionally bad reporting. Very shallow in due dilligence and you sir should have questioned the numbers and dug a little deeper into what was reported by the government. There is even a report out today that the banks are now skewing their numbers:

June 5 (Bloomberg) -- Big banks in the U.S. say they’re on the mend. The five largest were profitable in the first quarter, rebounding from record losses for the industry in the fourth quarter. Share prices have jumped, with the KBW Bank Index doubling since March 6.

Treasury Secretary Timothy Geithner, after “stress testing” 19 banks on their ability to withstand a worsening economy, declared in early May that Americans can be confident in the banks’ stability and resilience. Wells Fargo & Co. and Morgan Stanley were among banks raising $43 billion in new capital since then through share sales.

“With our capital and assets, stressed as they have been, we can go back to focusing all our attention on managing our business and restoring value,” Citigroup Inc. Chief Executive Officer Vikram Pandit said after Geithner’s examinations were completed.

The revival may be short-lived. Analysts who have examined the quarterly profits and government tests say that accounting rule changes and rosy assumptions are making the institutions look healthier than they are.

The government probably wants to win time for the banks, keeping them alive as they struggle to earn their way out of the mess, says economist Joseph Stiglitz of Columbia University in New York. The danger is that weak banks will remain reluctant to lend, hobbling President Barack Obama’s efforts to pull the economy out of recession.

‘Bogus’ Profit

Citigroup’s $1.6 billion in first-quarter profit would vanish if accounting were more stringent, says Martin Weiss of Weiss Research Inc. in Jupiter, Florida. “The big banks’ profits were totally bogus,” says Weiss, whose 38-year-old firm rates financial companies. “The new accounting rules, the stress tests: They’re all part of a major effort to put lipstick on a pig.”

Further deterioration of loans will eventually force banks to recognize losses that their bookkeeping lets them ignore for now, says David Sherman, an accounting professor at Northeastern University in Boston. Janet Tavakoli, president of Tavakoli Structured Finance Inc. in Chicago, says the government stress scenarios underestimate how bad the economy may get.

The accounting rule changes that matter most for the banks came on April 2, when the Financial Accounting Standards Board gave companies greater latitude in how they establish the fair value of assets. Lawmakers, including Representative Paul Kanjorski, a member of the House Financial Services Committee, had complained that existing mark-to-market standards worsened the financial crisis.

Debt Valuation

Along with that change, FASB also let companies recognize losses on the value of some debt securities on their balance sheets without counting the writedowns against earnings. If banks plan to hold the debt until maturity, they can avoid hurting the bottom line.

At Citigroup, the recipient of $346 billion in fresh capital and asset guarantees from the government, about 25 percent of the quarterly net income came thanks to the debt securities rule change, the bank said.

Another $2.7 billion before taxes came from an accounting rule that lets a company record income when the value of its own debt falls. That reflects the possibility a company could buy back bonds at a discount, generating a profit. In reality, when a bank can’t fund such a transaction, the gain is an accounting quirk, Weiss says.

Citigroup also increased its loan loss reserves more slowly in the first quarter, adding $10 billion compared with $12 billion in the fourth quarter, even as more loans were going bad. Provisions for loan losses cut profits, so adding more to this reserve could have wiped out the quarterly earnings.

Wells Fargo

Without those accounting benefits, Citigroup would probably have posted a net loss of $2.5 billion in the quarter, Weiss estimates. In the five previous quarters, Citigroup lost more than $37 billion.

Wells Fargo also took advantage of the change in the mark- to-market rules. The new standards let Wells Fargo boost its capital $2.8 billion by reassessing the value of some $40 billion of bonds, the bank said in May. And the bank augmented net income by $334 million because of the effect of the rule on the value of debts held to maturity.

Wells Fargo spokeswoman Julia Tunis Bernard declined to comment, as did Citigroup’s Jon Diat.

The higher valuations Wells Fargo put on its securities probably won’t last, as defaults increase on home mortgages, credit cards and other consumer and corporate lending, Northeastern’s Sherman says.

Fed’s Optimism

“These changes will help the banks hide their losses or push them off to the future,” says Sherman, a former Securities and Exchange Commission researcher.

The Federal Reserve, which designed the stress tests, used a 21 percent to 28 percent loss rate for subprime mortgages as a worst-case assumption. Already, almost 40 percent of such loans are 30 days or more overdue, according to Tavakoli, who is the author of three primers on structured debt. Defaults might reach 55 percent, she predicts.

At the same time, the assumptions on how much banks can earn to offset their losses are inflated, partly because of the same accounting gimmicks employed in first-quarter profit reports, Weiss says.

“There’s a chance that it might work,” Columbia’s Stiglitz says of the government’s attempt to boost confidence. “If it does, then they’ll look like the brilliant general. But all these efforts also bank on the economy recovering and housing prices not falling too much further. Those are not safe assumptions.”

Indeed, while the government and accounting rule makers try to help the banks look their best, they may make the U.S. economy worse. As long as lenders are stuck with bad loans, they can’t provide new money to consumers or corporations to fuel a potential recovery. The banks may look pretty, but they’ll be zombies until they clean up their books.

(Published in the July issue of Bloomberg Markets magazine.)

To contact the reporters on this story: Yalman Onaran in New York at [e-mail].

Last Updated: June 5, 2009 00:01 EDT

Jun 06 09:27 AM

[enigmaman:]

Better then expected jobs report was misleading because the hours worked per week for the employed dropped to an amount equivolent to the loss of 375k jobs, " If a tree falls and nobody hears it does it make a sound" same for what they are not spekaing to. So the good news was you get to keep your job, the bad news is you work less hours, the ramifications is further erosion of consumer spending, last month the gov thought 4% was bad for the economic recovery what about 5.7%, they didnt say, why not??? Also manufacturing numbers improved ever so slightly but manufacturers fired more workers then the previous month, why no bru haha about this. If manufacturing is critical to our economic recovery why not expond on this enonomy of mnore production but with less workers, that doesnt imply a growing manufacturing base, its implies survival mode. Every economic report that we get from the press is presented in the best possible light to mask what lies beneath " How did you like the play Mrs Lincoln"

Jun 06 09:30 AM

[enigmaman:]

In additonal to previous post- what about unemployment at 9.4% the admin said the bank stress test that everybody passed was based on a worst case scenario with unemployment at the end of the year being 8.7%, so what do they say about the health of banking when the unemployment rate surpasses there worst case scenario 7 months in earlier then expected and only 1 month after the stress test results were revealed. Wonder when or if we will get the REST OF THE STORY!!!

Jun 06 09:34 AM

[mrresponsible:]

Check this out! globaleconomicanalysis.../

Not so rosy!

Jun 06 09:38 AM

[Donald Ingram:]

When talking about 14 million people that want to have a full time job and are willing to work if it is available, these small numbers mean ABSOLUTELY NOTHING!.
Reminds me of the old 'Monty Python' movie when the knight is standing there with no arms or legs, yet still insisting that it's only a flesh wound!

Jun 06 10:36 AM

[ECONOMICS 101:]

Cosmo Mannella of LIUNA is deeply worried of the Unemployment numbers. 375,000 additional workers of Non-farm payroll is nothing to be glad about!!!
His membership is deeply affected by these numbers and he fails to see what Wall Street is so happy about.
The numbers are bad.
Period!!
We must all work together to try and solve this pandemic.
Good luck to all.

By Johnathan Vrozos
johnathanvrozos.com
johnathanvrozos.ca

Jun 06 10:42 AM

[Rich Adams:]

Most agree that the unemployment numbers are at, a minimum, being manipulated. With no new jobs forthcoming other than some goverment jobs and the continuing delines in corporate earnings (most of which are also being manipulated) the next leg in the downturn should be an accelerated increase in corporate insolvency and debt failure. Many corporations are already reporting that the have downsized to survival mode. Continued declines in earnings can only lead to the final step of bankruptcy. Unfortunately the market cheerleaders, most of whom are fund managers, just keep saying unemployment is a lagging indicator in their effort to get their suckers to bring moe money back into their funds. There is even one former professor of finance out there who now owns and manages some funds who stresses that the M1 is now at a very high level (which he readily admits is the result of the fed printing $) which indcates that recovery is begining to occur. I had the opportunity to talk to him (it didn't last too long though) and I asked him how this could be a sign of recovery while the veloicity of money is practically non-existant due to negative lending and spending trends. His reply was short. He agreed that recovery couldn't really occur without improvement in the veloicity of money and acknowledeged that it won't happen until unemployment trends turnaround.

Jun 06 10:48 AM

[mikesa69:]

WAKEUP:

Actually now over 20 at 20.5%. See www.shadowstats.com/

Jun 06 02:26 PM

[FourBrane:]

Reading these comments, I discern two classes of people: a) "the go'mint is liars" and b) "all is gloom and doom, never to resume."
Whether you trust employment estimates or not, it is useful to remind yourself that the same people make these estimates each time. As Bespoke's scatter chart clearly shows, employment estimates more often fall on the Polyanna side and the most likely outcome is that reported numbers will be worse than estimated. This makes the difference between estimates this time (doom, doom) and reality (just gloom) quite interesting to anyone trying to figure out whether that vast and complex thing we call an economy is turning...and which way. Everyone making estimates must first make assumptions. We are seeing that the gloomy assumptions which lead to the current estimates didn't fit the facts.
Sure, employment numbers are horrific and will rise for another four months at least. Get over it. That's reality. Our job as investors is to look ahead into the fog trying to figure out where things will be in a year or two. To comment obsessively on how bad things are at the moment serves only to raise adrenaline levels, but not the quality of decisions.

Jun 06 04:55 PM

[E Nuff Sed:]

Like Buffet say you pay a high price for certainty.

The stock market is only loosely coupled to the US economy plus if anything it is a leading indicator while unemployment is a lagging indicator.

For things to get better things have to start getting less bad first. This is what is exactly happening. Once unemployment starts falling the steepest parts of the gains would be all gone.

Jun 06 08:02 PM

[The Geoffster:]

But the mainstream media says the jobs report is good news because fewer jobs are being lost. This means the stimulus is working and the economy is on the rebound. I think I'll go out and buy a new Chrysler or GM and maybe buy some Treasury Bonds while I'm at it.
Disclosure:
TBT, GLD, SLV, DBA, MOO.

Jun 06 09:30 PM

[dragonpaw:]

We're falling from the burning plane (our economy) at terminal velocity (about 170mph) and our parachute (TARP,gov't BS, etc.) is deployed, but full of holes (perhaps ass-type). The good news(recent job-loss reports) ; we've slowed to 150mph.The bad news (20-50 trillion gov't debt and climbing); the ground is fast-approaching.

Jun 07 01:35 AM