Employment Brackets the Over/Under

The over/under is a betting level: the predicted points in a game. Last month employment disappointed, but it was blamed on weather. After that report, the catch-up level was 260k jobs in this report. We missed that by a mile. The catch-up number was lowered since then down to 196k by those mysterious "they" who set expectations. (At least in Vegas we know who the bookies are.) This report came in bracketing the over/under:

• 192k new jobs, below 196k expectations
• 222k private sector jobs, above 200k expectations

Stocks are down today, possibly reacting to an under. More on that below. The spinmeisters are out in full force, however. Just before the report the herd expected the over (60% thought it would beat). After the report the consensus of opinion appears to be this comment from CalculatedRisk:

This wasn't a great report. Heck, it wasn't a "good" report. But it was a little better than most recent reports.

At this stage in the business cycles, upward revisions are more likely going forward, so this report should improve with more data. What is less clear is if new jobs will ramp up, or just remain steady - the average between January and February is only 127K new jobs, below what is needed to keep up with new entrants to the workforce. The 192k number is a catch up from a dismal January number of 36k, which was revised up to 63k. 

The market reaction has been mixed. Bonds improved but reflect a reasonable chance of a rate increase later this year. Stocks may be reacting to a modest recovery, which makes QE3 less likely, and would remove the speculative pump under markets. On the other hand, the report shows no surge in wage inflation, meaning QE has not yet spilled over into wage inflation:

The below-the-surface issue with the report is a continued detrioration of the overall employment picture. While the unemployment rate is down, the rate of participation and the ratio of employed to population continue to fall even faster. This means statistically the unemployment rate has dropped not because of more jobs (numerator) but because of fewer workers (denominator). Without those dropouts, the unemployment rate would be 11%. 

Comments

[yelnick]

Joe, I am done with those sorts of posts, per my latest post, but a comment: this correction is looking like a typical wave 4 sideways move, likely becoming a contracting triangle. This suggests a thrust higher is coming.