economy Markets

‘I Fell Off My Chair. We Need To Massively Revise Projections’: Market Stunned By US Jobs Report

"There will naturally be some doubt lingering about these figures".

The “V-shaped” recovery camp secured bragging rights on Friday.

The May jobs report in the US was an astounding upside surprise. Donald Trump was ebullient on Twitter, where he quoted some delirious-sounding commentary from CNBC, and urged Americans to tune in for a press conference at the White House.

“It’s a stupendous number. It’s joyous, let’s call it like it is. The Market was right. It’s stunning!”, Trump tweeted, citing Jim Cramer.

Read more: Unemployment Rate Drops, As US Labor Market Stages Dramatic Rebound

To be sure, it is good (great) news that 2.5 million jobs were added last month. After all, 20.7 million were lost in April, and the latest revision for March shows 1.4 million positions were shed during the first month of the COVID crisis.

I had planned to do the customary granular breakdown, but I see little utility in it now – all you need is the following skin-deep snapshot.

Some are skeptical of the numbers, but I would note that Canada posted a similarly astounding beat Friday, which lends legitimacy to the US data.

It’s somewhat lamentable that some market participants feel compelled to look north of the border to “verify” US economic data, but these are unusual times, and it’s an election year. So, when you see something as anomalous as Friday’s US jobs report surely was, your “spidey sense” probably should tingle a bit, no matter your partisan persuasion.

The BLS did add this caveat:

If the workers who were recorded as employed but absent from work due to “other reasons” (over and above the number absent for other reasons in a typical May) had been classified as unemployed on temporary layoff, the overall unemployment rate would have been about 3 percentage points higher than reported (on a not seasonally adjusted basis). However, according to usual practice, the data from the household survey are accepted as recorded. To maintain data integrity, no ad hoc actions are taken to reclassify survey responses.

In a quick take, ING called it “simply astonishing”.

“Apologies – this has taken a little longer to write having just fallen off my chair and broken it”, the bank’s James Knightley said.

“This was so far away from what anyone was expecting”, he added, noting that “it is simply astonishing given the slow pace of reopening and the fact that more than 12 million people filed a new unemployment claim during the survey period”.

That latter point is likely to receive more than a little attention over the next several days.

The only potential downside to this is that it could cast doubt on Democrats’ push to secure a fourth stimulus package.

If the data continues to improve, and there’s no evidence that a meaningful second wave of the virus is upon us, Senate Republicans may be reluctant to back another multi-trillion package, with Wall Street projecting the deficit could rise above 20% of GDP including a prospective “phase four” bill.

As for the Fed, suffice to say it will take more than a single jobs report to compel a rethink of the current policy trajectory, but it won’t be long before critics of Jerome Powell’s aggressive crisis response demand he roll back some of the accommodation.

Remember, it was just a few weeks ago when STIRs were busy pricing in negative rates.

“[The jobs report] shows a V-shaped recovery in the US is becoming more likely”, Wells Fargo’s Brendan McKenna told Bloomberg, in an e-mail. “If negative rates from the Fed get priced out, that is also something that helps the dollar strengthen”.

This was a “surprise [that] is definitely going to send risk appetite rocketing up”, Bank of New York Mellon’s John Velis remarked.

“There will naturally be some doubt lingering about these figures given they are telling such a different story to all other data on the labour market”, ING’s Knightley said, in the same note cited above.

“But these are the official ones and on the face of it are fantastic”, he added, noting that taken at face value, they suggest the American economy “can bounce back very vigorously and we all need to massively revise up our economic projections”.


7 comments on “‘I Fell Off My Chair. We Need To Massively Revise Projections’: Market Stunned By US Jobs Report

  1. As I look around at my little world I can now get a chair at most restaurants. This is not to say that things are back to normal but at least some owners are gaining some income back. However local Walmart has not yet started doing oil changes yet.

  2. The only thing missing are chants of “USA, USA, # 1, # 1.” I guess we can all cancel our subscriptions now that things are back to normal.

    The crisis and it’s aftermath will take several quarters to play out, nay, years. The most optimistic estimates put January 2020 GDP out of reach until January 2022. By Christmas, after two more quarters of this economic miracle, we’ll still be 20% down. But, the “investors,” whoever they are (if any one knows who “investors” are, please share), are smart, they got it figured out. Kudos to them for getting it right and buying into one of the most expensive markets in modern times.

  3. Look out China… Here he comes.

  4. Can you please tell me how to turn (-12) into (+2) without a philosopher’s stone? Thank you!

  5. I’m suspicious when the same error occurs twice in favor of a “reopen at any cost” administration, the number tinkering seems similar to Barr’s direct interference in investigations…

    Imagine how many companies could get away with mis-reporting revenue by 25%:

    “The same misclassification phenomenon occurred in April, too — the official 14.7% unemployment rate would have been nearly 20% if furloughed workers had been identified correctly, the BLS said.”

    As H often points out:
    1. these are real people, not just numbers
    2. miscounting them doesn’t give them a way to pay bills

    • And, of course, when people can’t/don’t pay, there is no revenue/cash flow and tax collections fall.

  6. Following up with more data for posterity, apparently “it’s just a mistake” with survey respondents refusing to clarify “just absent from work” (for instance the NY Times best-sellers list is also a survey that is often heavily manipulated, the attempt to add a citizenship question on the Census, etc.)… and weirdly in contrast to the ADP numbers: (note ADP indicates -2.76M jobs in May, I assume this is cumulative to the -20.2M jobs lost in April)

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