Friday's Job Data

by Larry Levin

Friday's Jobs Data and the market's reaction to it was no surprise. It was my belief that traders had decided several days prior to the release that equities would rally regardless due to the chatter in the market: if the data was bad that guaranteed more Fed action, and if it was good then things would be getting better. It was set up to be a heads I win, tails you lose type of bet.

Friday's data...

The monthly jobs tally once again notched a loss, this time -54,000 in August.
Non-Manufacturing ISM was worse than expected and the WORST of 2010. Bloomberg said...The ISM non-manufacturing report shows broad and deeper-than-expected slowing. New orders at 52.4 are down more than four points in August for the slowest rate of month-to-month growth so far this year. Employment, which in this report includes government workers, is signaling contraction, at 48.2 for a nearly three point decline for the worst reading since January. The composite headline index at 51.5 is down exactly three points for what is also the worst reading since January.
Good news, huh? Equities followed the game plan by exploding again with an S&P500 gain of +13.25.
Just a few days ago I wrote about the severe inconsistencies of the regional and national manufacturing data. That crazy trend continues with today's terrible non-manufacturing ISM; but somehow the ISM is great? Something is very wrong here and I hate to say it, but I am starting to wonder if there is outright government manipulation of the data because it is so bad. After all, an election is coming.

Here is David Rosenberg with much more on the topic (from Gluskin Sheff):

The latest batch of data has been highly confusing, to say the least. The chain store sales data were skewed by one-offs, such as retroactive jobless benefit checks that were mailed out in early August and the growing number (17 this year) of States offering sales tax holidays. We estimate that absent these influences, year-on-year sales growth would have been closer to 1% than 3%.

The spending data also belied the information contained in the Conference Board’s consumer confidence survey, as the facts-on-the ground ‘present situation’ index sagged to 24.9 in August from 26.4 in July — only 5% of the time in the past has it been so low. The ISM manufacturing index, which really got the ball rolling on this ‘take out the double-dip’ trade, managed to spike even though the three leading sub-indices — new orders, backlogs and vendor performance — all declined in what was a 1-in-100 event.

Not only that, but the employment component of the ISM surged to its highest level since December 1983, and yet the manufacturing employment segment of the payroll survey fell 27,000 — the first decline this year and the sharpest falloff since last October. Furthermore, the manufacturing diffusion index slumped to a seven-month low of 47 from 53 — in other words, fewer than half of the industrial sector was adding to staff requirements last month. It begs the question as to what exactly the ISM is measuring.

The list of inconsistencies in the data didn’t stop there. The entire increase in private sector employment in August was in the service sector — mostly health and education, which says little about the cyclical state of the economy. Yet 90 minutes after the jobs number was released, we got the ISM non-manufacturing survey and it flashed a contraction in services employment to a seven-month low of 48.2 from 50.9 in July.

Just a tad confusing, but the newly found bullish view of the economy is sort of corroborating evidence.

The employment report did not detract from the view that the economy is losing steam. The fourth quarter of a recovery typically sees real GDP growth of over 6% at an annual rate, but in this post-bubble credit collapse, what we got this time was 1.6% at an annual rate in Q2.

Moreover, there is nothing in the data to suggest anything but a further slowing in Q3, and the only reason why there is no contraction this quarter is because it looks as though we are getting another lift from inventories — though now the buildup looks involuntary, which will cast a cloud on fourth-quarter GDP barring a sudden reversal in the declining trend in real final sales.

Private payrolls were +247,000 when the equity market peaked in April, it slowed to +107,000 by July and was +67,000 last month. What does that suggest about the trend? Ditto for goods-producing employment, which was +67,000 in April, subsequently softened to +37,000 by July, and in August was the grand total of zero.

One can easily draw the conclusion from the data that we have dodged a bullet. But that does not mean we are out of the woods. Employment is a coincident indicator. Leading indicators, such as the ECRI, continue to deteriorate and to levels still consistent with nontrivial double-dip risks. Keep this in mind - private payrolls came in at +97,000 in November 2007 and the “Great Recession” began the next month. In other words, the +67,000 tally we saw today basically tells you nothing about how the pace of economic activity is going to unfold as we move into the fall.


Previous Day's Trading Room Results:

Trade Date: 9/3/10

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


1) No "Secrets" trades filled today.

2) Algorithm positions (4)

3) “Reading the Tape” positions (4) combined Secret’s, Algo, & “Reading the Tape” total… -10.75



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