Why Better Jobs News Still Isn't Good News

So far this week, the economic calendar has featured manufacturing data, pending home sales and factory orders. Despite better than consensus data and an oversold market, bulls have yet to sustain a strong rally. Compared to what is to come, this data will be quickly forgotten as our focus turns to the jobs market.

Wednesday is extremely busy with earnings from Cisco Systems (CSCO) and an interest rate decision from the Federal Reserve Open Market Committee (FOMC). Although this data is important, my focus will be upon the first piece of information released that day -- the ADP employment change report.

The ADP report is forecast to show that the economy lost an additional 200,000 jobs in October. As this loss would be the lowest since July 2008, and sharply lower than the 736,000 jobs lost in March 2009, expect all of the "less bad is good" nonsense to resume.

Thursday will turn our attention to the weekly employment report, where small declines in both initial and continuing claims are expected. This data leads us to Friday and the key pieces of data -- change in nonfarm payrolls and the unemployment rate.

Consensus calls for a loss of 175,000 jobs in October with the unemployment rate increasing to 9.9%. As with the ADP report, I expect the second derivative crowd to hark the decreasing rate of decline and that 175,000 are the fewest jobs lost since July 2008 as indications that economic recovery lies around the corner. Don't let them fool you. In a consumption driven economy, sustained economic expansion will not happen until people stop losing jobs and start gaining them. Further, even when we see a switch from job loss to job creation, I remain unconvinced that the economy will automatically experience a sharp rally.

Looking at every period of sustained job loss since 1948, we are now in the 22nd consecutive month of losses (average of prior five periods is 12.7 months) and have seen 7.4 million jobs disappear (average of 376% higher than prior periods). This puts the duration, total loss and loss as a percentage of the population well beyond what has been experienced in any period other than the Great Depression. Those who want to say this means the coming recovery will be more robust may go ahead, but I will not be joining you. Looking in the rear view mirror caused many of the problems that have derailed our economy, and those who continue this practice should expect similar negative results in the future.

Comments

[ryanclarke:]

Yes, jobs loss are terrible ... but more terrible is the lost tax income the Fed is counting on to pay Uncle Sam's bills. I suspect, what used to be taxed business and social security paying jobs are now being driven to the "grey market," as a result of poor management by the Fed for the past ten years. That is, being "unemployed" actually means working for cash, not bothering to file for a business permit at the local court house, and standing in line for food stamps because the cost of food goes up on a weekly basis ... just like in Argentina.

Nov 04 06:29 PM