Thursday, February 11, 2016

Why The Bulls Will Get Slaughtered - By David Stockman

Any economist with a modicum of common sense would recognize that even a tiny change in the seasonal adjustment factor would mean a giant variance in the headline figure. So the January SA jobs number cannot possibly reveal any kind of trend whatsoever—-good, bad or indifferent. But that didn’t stop Beth Ann Bovino, US chief economist at Standard & Poor’s Rating Services, from dispatching the usual all is swell hopium:
“Today’s numbers are about momentum, so while 151,000 new jobs in January is below expectations and off pace from prior months, the data shows America’s recovery is continuing. Amid all the global economic turmoil and domestic market gyrations, positive job growth, the drop in the unemployment rate to 4.9%, and the uptick in wages show the U.S. is heading in the right direction.”
Actually, it proves none of those things. For one thing, the January NSA (non-seasonally adjusted) job loss this year of just under 3 million was 173,000 bigger than last January—-suggesting that things are getting worse, not better. In fact, this was the largest January job decline since the 3.69 million job loss in January 2009 during the very bottom months of the Great Recession.
So are we really “heading in the right direction” as claimed by Bovino, Zandi and the rest of the Cool-Aid crowd?
Well, just consider two alternative seasonal adjustment factors for January that have been used by the BLS in the last five years. Had they used the January 2013 adjustment factor this time, the headline gain would have been 171,000 jobs; and had they used the 2010 adjustment factor there would have been a headline loss of 183,000 jobs.
We could say in a variant of the Fox News motto—–we report, you decide. But believe me, you can look at years of seasonal adjustment factors for January (or any other month) and not find any consistent, objective formula. They make it up, as needed……
(Full text at link below)
At the end of the day, the monthly jobs report is an economic sideshow. The nonfarm payroll part of it, in particular, is a relic of your grandfather’s economy when most jobs  represented 40-50 hours per week of paid employment on a year round basis.
You could compare both short-term changes and longer-term trends because jobs slots where pretty much apples-to-apples units, and the BLS had not yet invented most of the insane trend-cycle modeling manipulations and dense and obscurantist birth/death and seasonal adjustment routines that have turned the report into quasi-fiction.
Likewise, Wal-Mart and the like had not yet invented labor scheduling by the hour nor did the notion of temp agency and contract employment by the gig even exist.
As I have suggested before, the world would be far better off if they simply shut down the BLS. Adding up minimum wage gigs a few hours per week with full-time employment slots in a factory, as per the establishment survey, is a completely stupid, useless and profoundly misleading waste of time.
Similarly, there are already far more timely, accurate and honest price and inflation indices published by a variety of private sources.
And if we need aggregated data on employment trends, the US government itself already publishes a far more timely and representative measure of Americans at work. It’s called the treasury’s daily tax withholding report, and it has this central virtue: No employer sends Uncle Sam cash for model imputed employees or for 2.1 million seasonally adjusted payroll records that did not actually report for work.
Stated differently, the daily tax withholding report is the real thing and the whole thing; it captures the labor input of the entire US economy in real time, and does not get revised and manipulated endlessly over the course of months and years from its original release.
Why is this important? My colleague Lee Adler has been tracking the daily withholding reports for more than a decade and knows their details and rhythms inside-out. He now reports that tax collections are swooning just as they always do when the US economy enters a recession.
In fact, his latest report as of February 6th indicates that,
“The annual rate of change in withholding taxes has shifted from positive to negative. It has grown increasingly negative in inflation adjusted terms for more than a month. Following on the heels of a weak December, it is a clear sign that the US has entered recession……..the implied real growth rate is now roughly negative 4.5% per year……it is the most negative growth rate since the recession. It follows the longest stretch of zero growth in several years, This can no longer be considered temporary or an anomaly. It has all the earmarks of a trend reversal and is getting worse.”

Full text at: