Jobs Data

by Larry Levin


Friday's jobs data was surprising. It wasn't surprising because recession fears were turning into reality, but because the economy is apparently growing...the unemployment rate is dropping. The market didn't know how to react to it at first - was the unemployment rate actually falling or was the report wrong?

Most economists were expecting job losses of 80,000 but were reported as a 20,000 loss. April's jobless rate inched down to 5.0% from 5.1% in March. Economists had expected the jobless rate to tick higher to 5.2%. So if the economy is in trouble, how did the unemployment rate fall? The government makes statistical assumptions in all of its reports and this one is no exception.

For decades, the BLS has aimed at small businesses when measuring job creation, especially those not captured by its established monthly survey. Until 2000, this statistical adjustment was fixed at 35,000 each month, called the "plug factor." The recent drop in the unemployment rate results from a computer model based on a calculated "net birth/death adjustment," which is supposed to measure how many jobs small firms have created and shuttered.

For me, the sudden statistical drop in the unemployment rate was so out of whack with the economic data that it cannot be deemed credible. Without the "net birth/death adjustment," employment would have shown a substantially higher monthly job loss, as well as an increase in the rate. Specifically, this adjustment claimed job gains in real estate, the financial sector, and construction. Come on folks, these three sectors of the economy are shedding jobs like a hairy dog in the summer.

The BLS should be embarrassed to report this data. Its model suggests that there were 45,000 jobs coming from new construction businesses, 72,000 jobs coming from professional services, and a whopping 267,000 jobs in total coming from net new business creation. The only line items in the above chart that are reasonable are manufacturing and resources and mining. The economy has slowed to a standstill and the BLS model still has the economy expanding at a rapid clip. Perhaps we should call it the BS model instead of the BLS model.

What this means for the U.S. economy's prospects should be clear: the suddenly strong support from job growth looks very much like a mirage. To the contrary, sharply slower consumer spending and ISM reading below 50.0% for three straight months is essentially exerting the opposite effect on the economy.

Real Time Trading Signals*for

Trade Date: 5/2/08

E-Mini S&P Trades*
(before fees and commissions):

1) Engf sell @ 9:50am at 1415.00 = -2.50 (1 lot)

2) OTF sell @ 10:10am at 1418.25 = +1.50 (1 lot)

3) VA sell @ 12:40pm at 1411.50 = -2.00*2...stopped on high tick

4) Engf buy @ 1:00pm at 1411.00 = +2.00 (1 lot)

5) VA sell @ 1:35pm at 1411.75 = +2.75 (1 lot)

6) Engf sell @ 2:40pm at 1412.25 = b/e (1 lot)

7) Algorithm trades (3)...combined total...-3.50

E-Mini Russell Trades*
(before fees and commissions):

1) Sell @ 8:43am at 732.7 = +.5 & +1.9

2) Buy @ 9:12am at 734.4 = +.8 (1 lot)

3) Buy @ 9:21pm at 734.0 = -.6

4) Buy @ 10:20am at 730.9 = +.2 (1 lot)

5) Sell @ 10:45am at 730.8 = b/e & +.5

6) Sell @ 12:23pm at 725.4 = +.5 & -.7

7) Buy @ 12:58pm at 726.2 = +.8 & +1.4

8) Sell @ 1:37pm at 726.5 = +1.3 (1 lot) ...+$660


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