With the “synchronous global slowdown” narrative now confirmed and adopted as consensus, the US economy stands as the last bastion of hope for those hanging their hats on the idea that the world will avoid falling into a deep downturn.
Thursday’s ECB proceedings betrayed the extent to which dovish turns by policymakers are only “good” news if they aren’t predicated on overtly dour growth projections, and the Governing Council’s cut to the euro-area’s 2019 growth outlook certainly has a claim on “overtly dour.”
Speaking of dour forecasts, this week also brought us a pessimistic update from the OECD which again cut its outlook for the global economy, citing, among other things, Europe on the brink of recession, simmering trade tensions and China’s ongoing deceleration.
With that as the disconcerting backdrop, all eyes turn to the February jobs report in the US as the last hurdle for a week that has been anything but inspiring for US equities.
The US labor market is riding a record 100-month streak of gains and generally speaking, analysts were looking for “more cowbell” after January’s blockbuster.
“We forecast nonfarm payroll employment growth of 210k in February following an outsized gain of 304k in January”, BofAML wrote, in their preview. Barclays was looking for 200k on the headline, near the post-crisis average.
For their part, Goldman was less optimistic. “We estimate nonfarm payrolls increased 150k in February, 30k below consensus and the slowest pace in five months”, the bank wrote on Thursday, adding that if you ask them, “the trend in job growth has likely slowed from the 232k average pace of the last six months, and we also expect a drag of at least 40k from above-average snowfall during the February survey week.”
Well, suffice to say the party looks like it might be over, because it is a miss – and “bigly.” The headline print is just 20k, missing the lowest estimate (85k) by a country mile and making a fool of consensus.
This is the worst reading since September of 2017.
Worse (depending on your penchant for thinking that the Fed might be inclined to rethink the pause on hotter-than-expected inflation), AHE came in hot at 0.4% MoM and 3.4% YoY, with that latter print being well ahead of estimates.
Manufacturing payrolls managed just a 4k gain, well below the 12k expected.
Now let’s see what Larry Kudlow, Kevin Hassett and the other administration cheerleaders have to say about this apparent “glitch.”
Estimates and Priors
- Change in Nonfarm Payrolls, est. 180,000, prior 304,000
- Change in Private Payrolls, est. 170,000, prior 296,000
- Change in Manufact. Payrolls, est. 11,500, prior 13,000
- Unemployment Rate, est. 3.9%, prior 4.0%
- Average Hourly Earnings MoM, est. 0.3%, prior 0.1%
- Average Hourly Earnings YoY, est. 3.3%, prior 3.2%
- Average Weekly Hours All Employees, est. 34.5, prior 34.5
- Labor Force Participation Rate, est. 63.2%, prior 63.2%
- Underemployment Rate, prior 8.1%
Actual
- U.S. Feb. Nonfarm Payrolls Rose 20k
- Nonfarm payrolls in Jan. rose 311k
- Participation rate 63.2% vs prior 63.2%
- Avg. hourly earnings 0.4% m/m, est. 0.3%, prior 0.1%
- Y/y 3.4%, prior 3.1% est. 3.3%
- Nonfarm private payrolls rose 25k vs prior 308k; est. 170k, range 134k-245k from 31 economists surveyed
- Manufacturing payrolls rose 4k after rising 21k in the prior month; economists estimated 12k, range 8k to 24k from 18 economists surveyed
- Unemployment rate 3.8% vs prior 4.0%; est. 3.9%, range 3.7%-4.1% from 73 economists surveyed
- Underemployment rate 7.3% vs prior 8.1%
- Change in household employment 255k vs prior -251k
So how much of these consensus analyses upon which global markets turn from ALL of the major investment banks are just a copy and paste job from previous months with a couple of fudge factors thrown in for color? Goddamn prop bets and guesswork. Nobody knows anything.
That’s like screaming at the TV and saying: “How much of these weather forecasts are just weathermen and women going by the same models from last week with a couple of factors to control for current conditions? Goddamn guesswork!!” and what do “prop bets” have to do with a jobs report? have you been reading the conspiracy blogs again?
Complex systems, like the weather, the stock market, and roulette wheels, have multiple factors that cannot all be accounted for, and when that happens, you have chaos. That is not a conspiracy. That is math. And when people set futures contracts based on a jobs print miss that is not based on economic fundamentals, but bad guesses (not forecasts, but actionable guesses from highly-paid very important analysts) about economic fundamentals governed by chaos you are making a bet. Not an investment. Not a trade. Not an analysis. A bet. Like red or black, odd or even, or black 23 on the wheel.
give me a break, Harvey. if you’re dismayed to discover that predicting the headline print on a monthly jobs report is hard and often an exercise in futility, then i don’t know what to tell you. that’s common knowledge. nobody is sitting around betting the house on a given analyst’s NFP forecast. that’s absurd. and if you’ve ever read a sellside NFP preview, you know that yes, in fact there’s quite a bit of real economic analysis that goes into producing them.
the point here, by the way, is just that this overriding tendency (and it’s pervasive) for people to cast aspersions at sellside research gets old past a certain point. everyone knows there are myriad problems with Wall Street research, from conflicts of interest to much of it being completely superfluous. so Harvey is absolutely right in some respects. that said, a decade of bloggers and buysiders and alternative finance sites constantly deriding the sellside has created, in my opinion, a disconnect with reality. sometimes, analysts are just doing their jobs and that’s all there is to it. Like, if you’ve got the official NFP call for a given bank, that’s what you do. You produce that piece of research because that’s what you’re paid to produce. Generally speaking, you’re going to try to get it right because, you know, you that’s better than getting it wrong. Consensus is just all of those estimates rolled up together. It just is what it is.
Fair enough, but I just don’t like the idea of quantities counted by the Labor Department exceeding or missing forecasts – and markets moving because of the forecasts. Analysts were wrong on the upside in February, but wrong on the downside in January. When you look at a chart on the monthly jobs report it looks like spaghetti, and the non-seasonally adjusted jobs report looks like noise. Counting jobs is kind of a weathervane. Under 100k generally bad because of the growth in the labor market, 100k meh, and over 100,000 better but an incomplete story without accounting for the quality of the jobs, wage growth, or labor participation. Focusing on a headline number without this context means that the financial press and the stock market are not acting according to the strength of the real economy, but on the strength of their ability to predict trivia.
Walt, I was really hoping you’d highlight flaky Kudlow’s fluky comment.
But that would’ve been too easy. You’re better than that
I’ll highlight that knee slapper about Navarro- as he expecting a million?? Ohhh, that’s a swing and miss Peter
It can be difficult to put lots of weight in one monthly report. Probably, the best way to read this one is that there is slowing. An alternate read might be that January was an anomalous high report, and that January and February together are OK. The AHE report is the strange one. There were a number of companies that reported increases in wages at the start of the year, and perhaps this was just the season for raises. There is another way of looking at the numbers that is not great for fed watchers. I don’t think this is what is happening. But you could look at those numbers and think we are basically at full employment, and the only way employers are going to recruit workers is by increasing wages. That would be great news for the American worker, but not so great for those counting on looser fed policy. Not likely what is happening, but possible…