What Are They Smoking ? : Latest Payroll Data
Well the latest monthly payroll data is in and we gained 110K jobs and the market and the talking heads are euphoric. Supwise, supwise,.... amazing, startling even. 110K is far below the breakeven point of 150K/month required just to keep our heads above water and even farther below the 225-250K/month required to grow the economy, let alone make up for all the jobs lost during the downturn. If you've ever wondered why people have had a general feeling of malaise about the economy and our prospects on the one hand the weak...weak jobless recovery goes a long way toward explaining it. And if you've wondered why there's been no new hiring or capex spending, well guess what - businesses are rational and if demand isn't growing they won't invest in expanding capacity.
Our esteemed exemplar Barry Ritholz does an excellent job of dissecting the details and
weaknesses of this month's report over at TheBigPicture:NFP WTF ? He also appears to share our shock at the euphoria and document it as well.
So we'll concentrate on poking underneath that with a few graphics examinations of trends - here immediate and below both longer term as well as put the ADP vs Gov't stats debate a bit to bed. The "soundness" of this report should be immediately apparant - YoY growth was 1.2% (healthy growth is > 2% and approaches 3% in a robustly growing cycle). Worse yet the trend is very definitely down, and you can see the relationship to the longer-term of this current business cycle in the sub-chart. So much for the stock-market as a forward-looking and prescient discounting mechanism. It looks more like an extrapolation tool based on whatever, in this something funny in those cigars perhaps ? :) !
Speaking of net new job creation check out the accompanying composite chart. It shows net job
creation since Apr00 while the sub-chart runs the approach back to 1980 on a quarterly basis. Notice in the first part that new jobs have been basically running on the 150K/month line since Apr04. Which means that if you net out 150K/month we have, in essence, been at zero new job creation for almost three years; and it's slowing ! If you add up the net jobs to get cumulative job creation the picture looks even worse - we're in the hole six million jobs required to just maintain employment levels even with labor force and productivity growth. Really not good. Of course that depends partly on the 150K assumption and there've been arguments that the range is [120, 170] with the Fed doing some work that argues that long-term trend growth is slowing because labor force and population growth is slowing. And if productivity turns out to be down so trend growth move into the 2.5-3.0% range from the current 3-4.0% range we will indeed be in a brave new world. It also depends on your start point so you can see that complication on the 2nd sub-chart where the longer-term net is not so good. Sorta - what it means is that all the long golden age of the 90s is lost to us because we didn't keep the net new jobs and are still -2 million jobs in the hole. All this sturm und drang over income distribution, changs in the economy, globalization, etc. etc. ? Well guess what - a bunch of that is because we haven't been creating the jobs for the people we have (who, to be fair, haven't gotten the education and skills they need; triump of the chicken-n-egg ?).
One other little thing to put to bed is the debate over the ADP numbers verses the government reports. Actually ADP has gotten a lot better, the various data sets track each other pretty well and particularly and MOST importantly, capture the same trends and turning points, which is the hardest thing to do.
The charts at the left show the YoY% changes in ADP and Private NSA payroll numbers as well as the total payroll number. They track quite well with a possible telling exception - the ADP YoY is significantly below the reported changes. One interpretation is that the recent Birth/Death adjustments for small businesses have over-estimated job creation (cf. Mr. Ritholz's post).
In any case as you can in the 2nd sub-chart the two series have some timing discrepencies but basically arrive at the same answer. In other words give or take adjustment problems plus B/D issues when the ADP number comes it, it's really....really worth paying attention to. Especially when you recall that it's Private Employment that reflects and drives the economy.