After several years of trying to put a positive spin on economic data in an attempt to validate the success of Fed policies, which in light of recent events have clearly failed with bond yields today touching new all time lows and market-derived inflation expectations about as low as they have ever been while even CNBC now admits that the only policy target of the Yellen Fed is to keep stocks as high as possible (there it is clearly succeeding for now), it was somewhat surprising to see Rosie "the bull" vaporize, and be replaced by the bearish side of David Rosenberg in such vigorous fashion today after years of hibernation.
The metamorphosis took place in what was a rather scathing take on today's jobs report, about which he said that "it makes little or no sense that the business sector would be so cautious over committing capital to the real economy and at the same time embark on a sustained hiring spree."
We agree. Here are the highlights:
What if I told you that employment actually declined 119,000 in June and has been faltering now for three months in a row? Yes, that is indeed the case.
Of course, the focus, as always is on the non-farm payroll report but keep in mind that while this is the data series that moves markets, it does not necessarily have the final word on how the labor market is truly faring.
Okay, so let’s get the pablum out of the way first. Nonfarm payrolls surprised yet again but this time to the upside — surging 287,000 in the best showing since last October and again making a mockery of the consensus economics community which penned in a 180,000 bounce.... when taking May and June together, they average out to be less than 150,000 versus the twelve-month average of 200,000 so even as the June data pulled a major upside surprise, the overall view that the pace of job creation is moderating remains fully intact.
It’s not as if the Household sector ratified the seemingly encouraging news contained in the payroll data as this survey showed a tepid 67,000 job gain last month and rather ominously, in fact, has completely stagnated since February.
Historians will tell you that at turning points in the economy, it is the Household survey that tends to get the story right.
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The simple fact of the matter is that May and June were massive statistical anomalies. The broad trends tell the tale. Go back to June 2014 and the six-month trend in payrolls is running at a 2.2% annual rate and the three-month trend at 2.4%. A year ago, as of June 2015, the six-month pace was 1.9% and the three-month at 2.2%. Fast forward to today, and the six-month annualized rate is 1.4% and the three-month has slowed all the way down to a 1.2%. This is otherwise known as looking at the big picture.
But wait, Rosenberg said jobs actually declined? Here is his math:
When the Household survey is put on the same comparable footing as the payroll series (the payroll and population-concept adjusted number), employment fell 119,000 in June — again calling into question the veracity of the actual payroll report — and is down 517,000 through this span. The six-month trend has dipped below the zero-line and this has happened but two other times during this seven-year expansion.
See, it isn't that difficult to have a critical eye on government data and refuse to drink the BLS Kool-Aid now. His conclusion:
The Fed may well be breathing a sigh of relief, but we are not out of the woods yet. My advice is to simply ignore those pundits who may conclude that a rate hike is back on the table any time soon.
Actually, the market is already doing that for you David: with stocks at all time highs and bond yields at all time lows, the algos are quite confident that the Fed will not hike for a long, long time. As for the underlying economy, alas that has not matter for nearly a decade, something have said constantly and something which even Rosenberg once again admits.
Source: Gluskin Sheff
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