The Jobs Report: 'Never Mind'

Gilda Radner's Emily Litella on the Saturday Night Live of yore used to respond with a sheepish "Never mind" when proven wrong. That roughly approximates our reaction to Friday morning's September employment report.

It turns out that the initial jobs report for August was wrong, and by more than a little. You may recall that the government's first report for August showed the first net loss (-4,000) in nonfarm payrolls in four years. It wasn't hard to jump to conclusions. But as we learned today, there was no loss in August, which actually posted a revised 89,000 gain. What's more, the initial estimate for September showed a 110,000 rise in nonfarm payrolls--the highest since May.

Par for the course, we might add. Economic data is always and everywhere subject to revisions. So it goes. As such, the fear that the economy's about to slip into recession is, for the moment, on hold. At least until next week, when a fresh batch of numbers is released and we can all adjust our outlook one more time.

If nothing else, the world (including your humbled editor) has learned once again that trying to see the future by looking into the past shares all the safety qualities of driving drunk in rush hour with one hand tied behind your back. Forecasting is invariably laden with risk--and more than we know. True for economic forecasting, true for the capital and commodity markets. There are simply too many variables with too many relationships suffering too many exogenous events to believe that true clarity will be forthcoming any time soon if ever.

By that reasoning, we should all close up shop, find something productive to do (like planting trees or helping the sick), buy the global portfolio as determined by Mr. Market's cap weights for our retirement portfolios and move on. This, of course, is the ultimate default portfolio, perfect for investors with no particular view on the future but nonetheless eager to maximize return and minimize risk. Any takers? No? We didn't think so.

So, then, it's back to business. Yes, the economic gods hoodwinked us again. Now what? Okay, we admit it: we're a glutton for punishment, so let's dust ourselves off, pick up our shattered egos and take another look at the data as it now stands, all the while remaining fully aware that we just can't seem to learn from our mistakes.

Enough. Proceed from here at your own risk. As our chart below shows, the labor market's showing signs of life--one might say surprisingly so. Nonetheless, 100,000-plus new jobs per month hardly looks like a boom. It's pretty good by recent standards, but the trend still looks down. All of which brings us back to the old question: Is the economy just slowing or headed for something worse?

For obvious reasons, we're even more reluctant to venture a guess, at least in public. That leaves us to ponder the longer-term perspective for possible clues. That includes looking at nonfarm payroll changes on 12-month rolling percentage basis, which we've conveniently graphed below. It's clear that the economy's capacity for minting new jobs is looking tired. Yes, that could change, and for reasons that nobody currently understands. But for the moment, the trend is the trend and mere mortals must decide if it has legs.

As for the financial gods, otherwise known as the leaders of the Federal Reserve, there's the more immediate question of interest rates. More to the point, how does the 50-basis-point cut of a few weeks back look in context with this employment update? Dare we say that if the Fed knew then what we all know now, the FOMC might have acted different on September 18? But shame on us for even posing such a thought, which only encourages more speculation.

Of course, aren't we all speculators in the end? Perhaps, unless we take the advice dispensed above and simply buy the global portfolio as determined by Mr. Market. Decisions, decisions...

Comments

[Malkiel:]

I notice that some of the guests on CNBC a couple of weeks ago tried to explain the problem of the delay in reporting teacher hiring in Florida and Texas caused by late school calendars in those states, and were more or less brushed off by the CNBC talking heads who didn't want to believe that there were that many teachers or that they mattered in the statistics. So we have some ideologically-induced blindness and lack of followup by otherwise good business journalists that could have conceivably changed the whole market landscape. If the CNBC staff had spent the week of the last jobs report delivering caveats about the teacher figures, does anyone believe the market would have been as volatile as it became? A little bit of rigorous journalism goes a long way...

2007 Oct 07 03:08 AM

[Uncle Bill:]

"Conceiveably change the whole market landscape"? "Otherwise good business journalists"? You don't know what you're talking about, Malkiel.

2007 Oct 07 08:16 AM

[Malkiel:]

The market suffered several down days, a couple of percentage points of loss, and possibly billions of dollars in paper and real losses to investors and institutions because the journalists who were supposed to be explaining that the unemployment figures being offered were incomplete due to calendar issues didn't. (though they did explain, although pigman below missed it, why public sector jobs like teachers had been added back in by those who issue the report). That changed the whole market landscape for all players, who would have bought and sold very differently when under the much stronger impression than they should have been that jobs losses were signalling recession.

2007 Oct 09 12:46 PM

[the_pig_man:]

Guess what? Teachers have nothing to do with
the real economy and they were responsible
for most of the August revisions and a large part of
September's. Most Wall Street economists throw
out government jobs and only count private
employment. It is a real hoot that everyone is
falling all over themselves praising this report. But that'show dumbed-down Americans have become.
Too stupid too look at the details.

2007 Oct 07 06:02 PM