Guest post by Peter Tchir.
I don’t think the BLS is nefarious or did anything wrong with last week’s numbers. I’m frankly surprised by the disbelief many have with the numbers, though it is part of what seems to be a growing trend – frustration at manipulated markets.
The household survey is flawed in its methodology. It is a survey of 60,000 households in a nation of 310,000,000 people. A very small sample size which explains why +/- 436,000 is a “statistically significant movement”. For the actual NFP, the number is +/- 90,900. So clearly the room for error in the household survey is large.
Then the household survey actually has a broader definition of “employment” than the NFP. The BLS tracks something called “Adjusted household survey employment” which attempts to make the household survey conform better to the NFP. That number was only 294,000, so good, but more in line with the NFP of 114,000.
What is more striking is that people are ignoring that in July and August, the household survey said there were job losses rather than job gains. So the three month total of NFP is 437 compared to 559 for the household survey and 507 for the much maligned ADP.
Market comments by Hussman Funds.
Examine the points in history that the Shiller P/E has been above 18, the S&P 500 has been within 2% of a 4-year high, 60% above a 4-year low, and more than 8% above its 52-week average, advisory bulls have exceeded 45%, with bears less than 27%, and the 10-year Treasury yield has been above its level of 20-weeks prior. While there are numerous similar ways to define an “overvalued, overbought, overbullish, rising-yields” syndrome, there are five small clusters of this one in the post-war record: November-December 1972, July-August 1987, a cluster between late-1999 and early 2000, early 2007, and today. The first four instances preceded the four most violent market declines in the post-war record, though each permitted a few percent of additional upside progress before those declines began in earnest. We do not know what will happen in the present instance, particularly over the short-run. But on the basis of this and a broad ensemble of additional evidence, we estimate that the likelihood of deep losses overwhelms the likelihood of durable gains. To ignore those four prior outcomes as “too small a sample” is like standing directly underneath a falling anvil, on the logic that falling anvils are an extremely rare occurrence.
Biderman on those BLS figures. Last Fridays’s Bureau of Labor Statistics release said 115,000 new jobs were created in April. However, if you read the footnotes, what Friday’s report really says was that the BLS is 90% certain that April new jobs were between 15,000 and 215,000. Mind you, the BLS did not say 100% only 90% certain. That means it could be negative or wildly positive.
Meanwhile, a 200,000 gap in new jobs is so wide that it makes the entire report meaningless.
Yet, not one story I read said anything other than 115,000 new jobs were added in April, as emphatically as if the 115,000 number came straight from the burning bush. Yes, our good friend Dennis Gartman did write about the plus or minus 100,000 uncertainty, but no one else I saw. Video below.
This Friday the Bureau of Labor Statistics will release its guess as to how many jobs were created in April. The media nitwits will report whatever the number as if it were the gospel truth. Those who need the action will trade the number as if it means something.
It is sad to me that the BLS and everyone else but us ignores the fact that real time data is readily available on how many people are working and how much they are making. Where? Embedded in the withheld income and employment taxes sent to the US Treasury every day by all employers.
The truth is that the initial BLS new jobs number is a joke even in the eyes of the BLS. How do I know that? I just reread some BLS footnotes for the first time in several years. (full notes here).
Full video below.
From Schnapp’s Macro Musings of Trim Tabs.
Last Friday, I received lots of calls from reporters asking about last Friday’s disappointing BLS jobs report. They were wondering if perhaps the BLS numbers from December through January were not be correct and wanted to know what we thought. In response to their questions I asked why they would assume that the BLS estimate, based on an incomplete survey, that is revised month after month, then revised again a year later would be taken as the gospel truth about the true state of the labor market.
For over a decade we have been pointing out that the BLS method of estimating employment growth using a seasonally adjusted survey frequently yields an inaccurate measure of actual employment. The BLSí employment estimates are particularly suspect from October through March when their seasonal adjustments range from 800,000 jobs to as high as 2.1 million jobs in an attempt to measure employment growth ranging from a few thousand to 200,000. When the seasonal adjustments are 4 times to ten times greater than the employment you are trying to measure the results are highly suspect.
In case you missed it while you were busy eating easter eggs.
The NFP was a small disaster with the ES futures dropping hard.
The JPM Trader Bruno Iksil, is “distorting the index”. From Bloomberg.
A JPMorgan Chase & Co. (JPM) trader of derivatives linked to the financial health of corporations has amassed positions so large that he’s driving price moves in the $10 trillion market, traders outside the firm said.
Iksil may have “broken” some credit indexes — Wall Street lingo for creating a disparity between the price of the index and the average price of credit-default swaps on the individual companies, the people said. The persistence of the price differential has frustrated some hedge funds that had bet the gap would close, the people said. Full article here.
More on the topics below.
While we eagerly await the new BLS figures, Gallup has provided us with some insight regarding the latest jobs trend. According to Gallup, US unemployment increases in mid February. We can’t wait to see the next BLS report coming out soon.
The U.S. unemployment rate, as measured by Gallup without seasonal adjustment, is 9.0% in mid-February, up from 8.6% for January. The mid-month reading normally reflects what the U.S. government reports for the entire month, and is up from 8.3% in mid-January.