Friday, May 7, 2010

1 million new jobs and counting

The jobs picture is getting a lot brighter with the release of the April employment data. According to the household survey, which for some reason doesn't get much press, the private sector has created 1.15 million new jobs so far this year. The well-known establishment survey (which typically lags the household survey at economic turning points such as we have today) finds that the economy's private sector has added about half a million jobs so far this year. Perhaps the reality is somewhere in the middle, but regardless, it is now very clear that the economy is growing and will likely continue to strengthen in the months ahead. Yesterday's Monster Employment Index confirms that businesses are going to be hiring more and more.

Despite these welcome gains in new jobs, the unemployment rate jumped back up to 9.9%. How is that? Simple: the number of people who are working or would like to work (the labor force) has surged by 1.7 million this year. A lot of people who had previously said they weren't looking for work now are; formerly discouraged workers are now back in the hunt for a job. We could see even more of this going forward, by the way, since it is still the case that the labor force, which tends to grow about 1% a year, hasn't grown at all since late 2008. So even some healthy job gains in coming months could fail to bring the unemployment rate down. That makes for bad headlines, but it doesn't make the economy any weaker.

The first chart, by the way, focuses only on the private sector. As the second chart shows, the public sector has also added some jobs of late, but that is almost entirely due to census hiring. Apart from that, the public sector is being squeezed by the marked deterioration in its finances. This is not unusual at this stage of the business cycle, and it will probably continue for some time to come as the electorate revolts against bloated government at all levels.

All in all, I think this is very encouraging news. There is every reason to believe the economy will continue to grow for the foreseeable future. The private sector's inherent dynamism has managed to cope with all the difficulties thrown in its path over the past few years. Tremendous adjustments have been made, productivity has surged, businesses are profitable, and so now another expansion is underway. This can feed on itself for a very long time, and it is a lot more powerful than the problems surrounding Greece's public finances.


The Lantern said...

Good stuff this morning on the jobs report.

Curious your thoughts on the medium term impact of the trading problems yesterday? I wonder if you think the paranoia among smaller investors will remain intact for awhile? People have to be scared if a 59.9% loss in 30 seconds (on no fundamental news) is something they want to risk. Will this carry on the way the paranoia after Enron did?

John said...


I don't know if you caught Jon Najarian's CNBC interview yesterday but I think he has some good points. The trading computers are creating these imbalances and apparantly they are swamping the market makers. Clearly the regulators need to address this because it will likely happen again. I think the SEC is already holding meetings and I would not be surprised if there were some Congressional hearings down the line as well.

The public IMO has not been in this market in any meaningful way since the fall of '08 and is not coming back for the forseeable future. They think the game is rigged and for the way many want to play, it is. You cannot swim with these sharks on their terms. We saw them feeding yesterday and it was not pretty. If I had my way I would shut down every quant's computer immediately and make them trade the old fashioned way. The speed is too fast.

Just my cheap opinion.

alstry said...


Between the Federal Government, State Governments, Local Governments, Public and Private Corporations, and Individuals.....America borrowed about $5 Trillion dollars last year and spent much of it....over 30% of GDP.

And we only created about a million jobs?

Could you imagine how many jobs would have been created in China if the Chinese borrowed anywhere close to that amount?


And we question the Greeks who have little private debt and government that is borrowing about 12% of GDP?

Public Library said...

Looks like we agree 100% on HFT John. There is no reason for millisecond trading other than to scalp the market using massive leverage. This does nothing for price discovery and everything for volatility.

HFTs should be shutdown. All trading should occur through exchanges where everyone benefits from the information. No dark pools, off-market blocks, nada.

If you trade in public securities, you should be held accountable for your action by the public.

People can trade private equity off-market all day long. But this dark pool, HFT, and direct broker cr*p is flat out wrong.

They sad part about yesterday is the little people with stop-loss orders probably won't get their money back.

Christian S. Herzeca, Esq. said...

i think you will see the market move its focus away from EU fiscal concerns only if there is actual funding of the EU/IMF package, and if there is some acknowledgment by the ECB that it stands ready if a crisis hits the next PIIG; then it is back to the recovery stupid, which is now in a job creation phase (finally). but if the ECB doesn't take ben's "anything it takes" manta to heart, then i am not sure if/when we are back to the new normal (which sure beats this new new normal). btw, some some good research out of ML/BA that the S&P shouldn't be too affected by a slowing EU.

Benjamin Cole said...

The other good news os that for three quarters straight, unit labor costs have gone down.

I don't see how anybody can accuse the Fed of being over-stimulative if unit labor costs keep going down.

Labor, if memory serves, is about 60 percent of a typical business costs.

Rent I think runs about 10 percent, and that is very squishy too.

Just don't see inflation out there.

On Greece: I know Scott against any regs on derivatives, although others, such as Buffett, are for regs. In general, I like less regs, but if our whole financial system can melt down due to some sort of fancy trading, I get nervous.

But I gotta wonder: Is the market reacting not to a Greek debt default--I mean their bonds are a small fraction of overall sovereign debt--but to some sort of derivative-and-leveraged related meltdown following a Greek default?

Scott Grannis said...

Benjamin: labor costs are among the very last places you will see the results of significant changes in monetary policy. Very very long lags. I think it's premature to say that the low level of wage inflation has anything to do with the Fed's monetary policy of the past year.

As for program trading and derivatives, the very best remedy is what happened yesterday. I'll wager that those running electronic trading programs will think twice and thrice about letting them run unsupervised. The market has evidently not regained the liquidity necessary to support a lot of trading. Until it does, the potential for expensive whipsaws is going to be a major force restraining participation in high volume trading.

Just as high levels of implied volatility act as a shock absorber for nervous markets (because it quickly becomes very profitable to sell options rather than buying them, this serves to automatically dampen market moves), so the potential for huge price volatility sows the seeds of its own solution, by making it potentially very costly if one happens to be on the wrong side of huge moves.

Finally, price action such as we saw yesterday creates a powerful incentive for speculators to prepare themselves to quickly take advantage of major price declines (by buying).

John said...


I think we will see both. The problem remains Greece's commitment to the plan. I think the current gov't will be booted and a more radical one renegs. Fortunately, Greece's bad debt won't derail the global economy. If the other PIIGS make the commitment to stay in the Euro I think this will work out in time. The market IMO is getting is collective mind wrapped around the problems with the usual overreactions. The biggie remains the US recovery and Asia's continuing growth. Europe will be dragged along as an anchor at the end of a chain.


I see your points. However the big problems these HFT programs cause is the PERCEPTION by the average small investor that the game is rigged against them...whether it is or is not is to me not the biggest issue. We NEED deep and liquid equity markets and to get that we need the small investors back. They are NOT coming with these images of careening volatility repeatedly flashed before them. I spent 23 years coaxing small investors (as well as larger ones) to enter risk trades for the higher returns they provided. In my personal experience it took three years for bad experiences to be overcome. The baby boomers now approaching retirement will remain in the financial bunkers unless they can be persuaded the game is fair to everyone. Well guess what? Yesterday our quant HFTs gave them a terrific reminder of why they don't trust the risk markets. This wild trading second by second for 'fast money' IMO is NOT conducive to the role of capital formation and long term investment I was taught equity markets were supposed to provide.

I agree with Public...Shut them down, make them trade the old fashioned way and restore some credibility and sense of fairness to our markets. The big NYC hotdog HFTs don't give a rat's a-- about America...only themselves. I repeat that whether in fact the playing field is level or not, the PERCEPTION is that it is definately NOT. And that is not a good thing.

This rant is over.

Nite, Ya'll