Unemployment Disappoints, Dollar Drops

Unemployment came in a 10% where the market expected a drop from Nov's 10%. The major immediate impact is to adjust assumptions about the Fed easing out of QE and raising rates - history shows this happens about a year after unemployment peaks, or at the end of 3Q10 if we had kept dropping. But the flat month may spook investors out of the USD and back into commodities. Gold jumped on the news, and Oil spiked up today, but has since eased; and the Dollar Index dropped.

This flip of assumptions may flip back, but not until April or so. As I have written, the 10.2% jump in Oct was a bit spurious, driven by seasonal adjustments which are based on assuming more retail outlets than we have anymore, and the Nov and Dec reports have this problem baked in. The next report (Jan numbers, reported early Feb) is beyond the seasonal (holiday shopping) adjustments, and may pop back up. After that we get the offsetting flood of census workers, which could drive the rate down even though those are once-a-decade temp jobs. A bit of an election-year scam, according to Mish, since we are hiring 3x the number of workers from last time. The excess hiring starts now and accelerates in April, pointing to a drop in unemployment rate in March or April, reported in May or June. This would start the Fed Rate Raise clock ticking again. Note that by around August those temp jobs will be gone, so any positive impact in Q2 is washed away by Q3. Did I hear double dip? Or in this case, roller-coaster?

Here is the latest chart:

Innocent Bystanders has an interesting take on this, comparing the predictions of an independent analyst (Zandi) with the government projection to give a different with- and without- stimulus chart. As you can see, hitting Zandi's "without-" projections suggest the Stimulus is having no impact over what would have happened without it:

 

Calculated Risk points out that despite the Unemployment RATE flattening, the Jobs-Lost PERCENT continues to get worse. The rate is the percent of reported unemployed over predicted workforce; the percent is of jobs lost from peak employment (it is more accurate, since it avoids the adjustments to the purported workforce):

There are a number of ways to square the two percents in the real world, not the surreal world of govt statistics. One way is to look at unemployment exhaustion: unemployed dropping off benefits is at record highs and increasing. The easiest way is to look at the number of former workers who have dropped out of the labor force:

 

As the purported workforce is shrinking, the rate can drop even as unemployment gets worse since it is based on employed/workforce, with the remainder the unemployment rate. Fewer employed, but even fewer in workforce, and unemployment RATE goes down even as unemployment goes up. The adjustments to workforce size have a large impact, as explained by Reuters today:

Then will come the second-take stories that will notice the shrinking labor force, which dropped by nearly 700,000 from November. Had it stayed stable for last month, the jobless rate would have been 10.4 percent. Had it stayed stable since August, the jobless rate would be 11 percent!

The adjustments also work distortions the other way: as the economy improves and those dropouts come back into the workforce, it will keep the RATE highish despite improving employment. Here is how Peter Boockvar put it in The Big Picture:

Household employment fell by 589k but because the labor force fell by 661k, the unemployment rate remained unchanged at 10% and this continued drop in the labor force is why the unemployment rate will remain high even when jobs are being added b/c these people will eventually come back into the labor force

This means things will be "lumpy" over the next year, and "sticky" after we really see private sector improvement. Investors will be whip-sawed a bit - another reason for 2010 to be a choppy year, not the dreaded debacle of a devastating P3 wave down to lower lows. 

Adding to the choppiness will be Q1 residential numbers, which the Fed in the recent FOMC minutes now expects to be poor to down:

It appears residential investment will disappoint in Q1, and prices might already be falling again - and that is before the massive government support programs will be wound down over the next 6 months. Of course CRE is getting crushed, but residential investment is usually a key to a recovery - and residential investment will remain sluggish.

Comments

[ron12paul]

neely looks bullish here, right? E looks higher on chart but time ran out today

[ron12paul]

neely:

http://docs.google.com/viewer?a=v&pid=gmail&attid=0.1&thid=1260fa3c61f75c3b&mt=application%2Fpdf&url=http%3A%2F%2Fmail.google.com%2Fmail%2F%3Fui%3D2%26ik%3D49a7d52303%26view%3Datt%26th%3D1260fa3c61f75c3b%26attid%3D0.1%26disp%3Dattd%26zw&sig=AHIEtbQoWYNFXZSEkiz8ctWVNeJcVCfgEg

[JT]

I wonder what EWI and Hochberg will say now . . .

The NYSE A/D line keeps making new highs for the move, and Prechter is now down 127 points on his 100% short recommendation at SPX 1000 and 1036. We won't even talk about his leveraged (200%) short recommendation.

[Guy who likes to look under the hood of superficial statistics in case they obscure important details]

The NYSE A/D line keeps making new highs for the move

http://www.tradersnarrative.com/nyse-cumulative-advance-decline-reaches-new-high-3368.html

[JT]

For someone that prides themselves on accuracy and attention to detail, you sure have an IRONIC way of showing it by posting a cummulative NYSE A/D line chart that is 3 weeks out of date.

Too funny!

[Guy who likes to look under the hood of superficial statistics in case they obscure important details]

For someone that prides themselves on accuracy and attention to detail, you sure have an IRONIC way of showing it by posting a cummulative NYSE A/D line chart that is 3 weeks out of date.

Too funny!

Dude, did you look at the NASDAQ A/D line from the piece, which the author of that piece said is probably more representative of the non-interest-rate sensitive stocks on the NYSE (i.e. the "operating company" A/D line)?

It was so far below making a new high that the last three weeks wouldn't change the point at all even if every "operating company" stock on the NYSE was up every single day

Moron.