A 19 month long trend of straight line jobs growth has made forecasting easy but, amazingly, most economists still get it wrong. At the same time, the Fed’s efforts to stimulate faster job growth by printing more money have been absolutely futile. The Fed’s solution therefore will be to do more of the same. Economists and central bankers are nothing if not stubborn.
The BLS today reported a seasonally adjusted (SA) gain of 175,000 in May nonfarm payrolls, slightly beating the consensus estimates of 159,000 to 169,000 from surveys of economists by mainstream media organizations. The report was in line with my expectation that the number would be at least as good as the trend.
The stock market’s initial reaction was strongly positive. The bond market’s was strongly negative. Gold was getting crushed. As usual, none of that makes any sense, rationally. By the same token, thinking that the markets should be rational is irrational. As of this writing the usual re-think hadn’t yet begun. I don’t expect an outbreak of rationality.
Unlike prior months, revisions to March and April data were small. The release for April had reported large revisions for previous months. The current report reflected a year to year gain in payrolls of 1.6% which was inconsistent with an adjusted 2.5% year to year gain in withholding taxes, so there should be an upward revision to payrolls next month. Nobody cares about that. They only care about this first guesstimate, which the BLS tells us has a margin of error of +/- 90,000. If you believe the withholding data, the number should have been closer to a gain of 265,000.
The SA headline number compares with a gain of 885,000 in the actual, not seasonally adjusted number (NSA). Since this number is not seasonally finagled we must look at past years to judge whether it’s good, so-so, or lousy. Last year the May NSA gain was 813,000 . In 2011, it was, 684,000. The 10 year average increase for May from 2003 to 2012 was 767,000, pulled down by an extremely weak year in 2009. Excluding 2009, the average was 822,000. This year stacks up well by all accounts.
The NSA number is not massaged to represent an idealized curve with seasonal tendencies filtered out. The actual data was again smack on the trend of the past year. One media outlet reported that a large number of economists surveyed had gotten the number correct. They have apparently mastered the arcane art of straight line trend extrapolation. The number of jobs has been growing at virtually the same rate for the past 19 months, around 1.5-1.6% per year, give or take a tenth. QE 3-4, which was announced in September 2012, with the cash flow starting in November, has not changed the growth rate one iota.
If we extrapolate 1.6% jobs growth against 1% population growth, we could theoretically calculate the point in time that the unemployment rate would fall to the Fed’s target of 6.5%. However, the government says that the size of the labor force rose in May and that the unemployment rate went up, so there goes that theory. As long as they can massage the data that way, the unemployment rate will never reach the target and the Fed can keep jamming the Primary Dealer accounts with QE cash until the cows come home.
While normally that would cause me to be eternally bullish, we’ve recently seen that Japan’s madcap money printing has been accompanied by huge selloffs in the JGB and Nikkei. Apparently the banks have been putting the cash they’re getting from the BoJ into US equities. This raises the possibility that someday the dealers will find other places to redeploy the cash they get from the Fed, like, say, gold, oil, wheat, and beans?
Central banks cannot cause economic growth to track the inflation of financial asset prices. In that respect I believe that they are absolutely doomed to failure. If their only solution to the failure to stimulate more economic growth is to print more money, then god knows where this is headed.
The only thing they’ve accomplished so far is the promulgation of asset bubbles, in particular US stocks and housing. They’ve had a run of good luck in suppressing reported consumer price inflation. I do not know how long they can be successful at that.
The numbers above come from the BLS the Current Employment Statistics Survey or CES, a survey of business establishments. The BLS also does a survey of households. The household survey or CPS — Current Population Survey– sometimes tells a different story from the establishment survey. It’s also important in that it breaks out full time employment from total employment so that we can analyze that important metric separately. That story continues in Part 2 of this report which will be posted a little later today.
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