From Panzner Insights:
Each month, the Bureau of Labor Statistics and Automatic Data Processing, Inc. detail what is happening in the jobs market. Although the tallies of monthly changes reported by each side are often out of kilter, their respective private nonfarm payroll totals have since the end of 2000 moved largely in tandem.
From December 2000 through December 2011, the median monthly gap between the two was 78,000, or 0.07 percent of the total. The largest reported difference was seen in November 2002, when the BLS total was 394,000, or 0.36 percent, higher than its ADP counterpart.
But as the chart shows, there has been a big change. From January 2012 through last month, the spread between the two series has widened dramatically as the BLS tally rose at a faster pace than the one reported by ADP. Over the span, the median differential was 614,000 jobs, or 0.55 percent. The minimum differential was 396,000, or 0.36 percent, in January 2012, while the maximum was 809,000, or 0.72 percent, in December 2012.
One possible reason for the disparity is that either the BLS or ADP altered the methodology they relied on in the previous 11 years and that statisticians on the other side have not yet cottoned on. While this is possible, I find it hard to believe that those who crunch the numbers for such an important data series would not be quick to incorporate an updated approach in their own calculations.
[Editor's note: some have pointed out that ADP did, in fact, revise their methodology in late-2012 to bring its figures more closely into line with those of the BLS; and yet, the gap between the two series appears to be as wide as ever. Say what?]
Another explanation is that statisticians at the BLS or ADP suddenly decided to “fudge” their numbers up or down, respectively. One obvious question, of course, is why would a company that stands to benefit from an improving jobs market want to report a more subdued sense of conditions on the ground than is actually the case? The logical answer is that they wouldn’t.
However, one could readily argue that many in Washington had a compelling interest in painting as bright a picture as possible of what was happening in an area of the economy that has remained in focus since the onset of the Great Recession. Why? Because they stood to gain from ensuring that policies that had benefited them personally–namely, continued government spending–remained in force.
One way to do that, of course, is to try and make it easier for those who were then in power to remain in charge after the next election, which just happened to be coming up in late-2012.
Hmmm.
From Panzner Insights:
Economists rely on a variety of indicators to try and get a read on the economy. But the apparent connection between certain data points and trends and future activity isn't always obvious or straightforward.
That doesn't seem to be the case in regard to the connection between retail sales and employment. Indeed, it makes sense that concerns about the job market would be quickly felt when it comes to household spending. If workers fear they might lose their jobs, they don't wait until they get the bad news before cutting back.
More broadly, if a large enough number of workers believes the job market is deteriorating, then it's a good bet the overall trend of retail sales will signal the change before the payroll data does.
As the following chart shows, this has been the pattern previously. Under the circumstances, the latest readings on the pace of retail sales suggest it's only a matter of time before the headline employment data reveals that the jobs market is heading south.
From Panzner Insights:
According to Business Insider’s Joe Weisenthal, the recent rebound in this key indicator is unequivocally good news—
even though we’ve seen plenty of similar rebounds before now that meant nothing of the sort—
and the longer-term trend has clearly been down—
Yep, it's all good.
Here is a brief commentary from Panzner Insights, which I posted on Thursday:
When trying to get a handle on investor sentiment, the benchmark of choice for many market-watchers is the CBOE S&P 500 Volatility Index, or VIX. However, this popular “fear gauge” only offers a snapshot of implied volatility, or relative pricing levels, for equity index options, which might not necessarily tell us all we need to know about the mood on The Street.
In theory, stock traders could be overreacting to equity-specific developments that are not relevant to other markets.
That said, there is data that suggests the high levels of complacency in the stock market are also being seen elsewhere. As the chart shows, gauges of implied volatility levels for equity, bond, currency, gold, and oil markets are at or near multi-month lows, suggesting that “the crowd” is unanimous in its belief that nothing untoward is going to happen in the immediate future.
Should we be worried?
~~~
Otherwise, here is a sample of other unique content published this past week that is only available to subscribers:
Dollar Rally Sees a Few Holdouts
Vietnam: Every Dog Has Its Day?
Faltering Amid an ‘Accelerating’ Recovery
Mid Cap Growth a Notable Underperformer
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Leaving aside the question of whether correlation equals causation, there appears to be a strong link between the level of U.S. interest rates and the overall health of the U.S. economy.
As the chart shows, the Federal Reserve-orchestrated slide in
interest rates over the past three decades has been accompanied by a
falling savings rate, a narrowing of the gap between personal income and
expenditures [which is encouraging some to choose options such as Aspire Money], and a substantial increase in total credit market debt.
While there may be more to it than that, including government policies that favor debt over equity and a deregulation trend that encouraged bad behavior by banks and other financial intermediaries, one could readily conclude that the Fed’s current aggressive monetary stance is doing little to return the economy to good health.
In fact, the central bank’s policies may well be making things a lot worse than they already are.
Given the historical relationship between cross-border trade and global economic activity, today's report from the Netherlands Bureau for Economic Policy Analysis that world trade volumes fell for a third straight month and are within a hair's breadth of turning negative on a year-over-year basis suggests that another global downturn is on the cards.
FYI, that was just one of many topics I discussed this week at my members-only website, Panzner Insights.
If you are interested in reading and hearing more unique updates on markets, economics, and geopolitics, you might want to consider joining those who've already signed up.
At last week's The Big Picture conference, respected strategist and newsletter writer Michael Belkin posted a comprehensive table with details about the recessions the U.S. has experienced over the past 110 years and what has happened to share prices during those times.
Given that the current business cycle is 40 months old (vs. the average expansion of 45-months -- or 37 months if you exclude the bubble-blowing era that began with the Greenspan Fed), the risk is high that another downturn will be starting soon (if it hasn't already done so).
Under the circumstances, it's worth keeping in mind, as Belkin noted, that the average recession-period decline for the Dow Jones Industrials average is 30.6 percent.
Uh-oh.
FYI, that was just one of the topics I discussed in yesterday's weekly podcast, "Looking Out Over the Investment Landscape," at my new members-only website, Panzner Insights.
If you are interested in reading and hearing more unique updates on markets, economics, and geopolitics, you might want to consider joining those who've already signed up.
Among the many interesting tidbits presented at yesterday's The Big Picture conference (I was there) was a chart by Jim Bianco of Bianco Research, L.L.C., which I posted at Panzner Insights, my new members-only website focused on markets, economics, and geopolitics.
As you can see, central bank balance sheets remain extraordinarily large and are much nearer in scale to what they were in the immediate aftermath of the Lehman Brothers bankruptcy than they were during the early stages of the global financial crisis (or before).
As I noted,
the big question, or course, is when the time comes for the Fed and others of their ilk to sell, who is going to be on the other side?
Regardless, that is just one of the many topics -- most of which can't be seen anywhere else -- that I discussed at Panzner Insights in recent weeks. Here is a brief sampling of others:
Feel free to have a look around.
Although economists cheered today’s “better- than-expected” ADP
National Employment Report—don’t they always?—continued flat-line job
growth in large companies and goods-producing industries continues to
call into question the notion that the U.S. economy is building a
foundation for future recovery.
In fact, it also raises the issue of whether the looming “fiscal cliff” won’t have an even more dramatic impact on the U.S. economy than some have been predicting. While the rich will have to cough up more in absolute terms than those at the lower end of the economic ladder, the relative hit to discretionary income will probably hurt small businesses and low-paid service industry employees the most.
Despite a modest uptick in October, the JPM Global Manufacturing PMI just recorded its fourth straight reading below 50. With its 12-month moving average teetering on that dividing line between expansion and contraction, it seems clear that the risk is to the downside as far as the global economy is concerned.
In fairness, the index has only been around for 12 years, which is not enough of a history to establish a definitive causal relationship. But given the value that PMI indicators for individual countries have had with respect to predicting economic upturns and downturns, and it doesn't seem a stretch to interpret the recent negative readings in a similar light.
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