Wednesday, November 2, 2011

Job market steady as she goes

As I noted last month, the huge spike in announced corporate layoffs was nothing to worry about (all of the outsized increase came from troop reductions), and today's announcement confirms that nothing unusual is going on. No deterioration in the job market, and no sign of any double-dip recession.

The ADP estimate of private sector jobs growth came in a bit stronger than expected, and last months' number was revised upwards. ADP seems to be doing a better job tracking the BLS jobs numbers, so today's ADP report suggests a strong likelihood that the jobs number released this Friday will be in line with, if not a bit stronger than, market expectations (+125K).

To be sure, while these charts show no deterioration in the jobs market, they do not come even close to suggesting a healthy economic outlook. Jobs growth of 125K per month is just about enough to keep pace with growth in the labor force, but not enough to bring down the unemployment rate, which remains very high. The economy is limping along at a pace much slower than it ordinarily would be, coming out of a deep and prolonged recession. But although the news is nothing to cheer about on its face, it is nevertheless better than what the market has been expecting (e.g., a renewed economic slump). Thus the equity market has enjoyed a 13% bounce in the past month. With markets, everything is relative; there are no absolutes.


Bill said...


I just read an article about the fears over credit default swaps and why that fear is driving the big market swings over the Euro debt crisis. The article suggests that no one really understands if it is a problem or not. The bailout of AIG suggests it is. Can you comment on this?

Scott Grannis said...

I think the big issue with CDS is that the Greek debt haircut that is being forced on the private banks is not considered to be a default, so the CDS contracts are not being triggered. This effectively renders the CDS contract useless as a hedging vehicle. So interest in the contract will decline sharply, thus reducing liquidity in the sovereign debt market. Less liquidity, fewer players, and limited hedging opportunities add up to a more volatile market.

brodero said...

The transparency on CDS swaps is awful. There is no public exchange
nor is the data available for public consumption. We have no idea
as to the volumes no wonder it is subject to rumors and innuendo.

Scott Grannis said...

DTCC is a pretty good source of information on CDS. Check this out:

John said...

Wouldn't a disorderly default in Greece (more likely now that a referendum vote is needed to support the EU plan) trigger the CDS constracts and make a whole lot of money for those going short on Greek debt?

Scott Grannis said...

A disorderly default would almost certainly trigger CDS payouts. But according to DTCC, the net notional amount of Greek govt. CDS is only $3.7 billion. Gross notional amount is $74 billion. In other words, the payouts would represent only a fraction of the $400 billion outstanding Greek debt.

Benjamin Cole said...

No nation should ever lose control of its currency; Milton Friedman said so.

The Greeks, if they had the drachma, could inflate, and pay back the debt with cheaper drachmas (I hope they would also cut outlays and build an enforceable tax system).

The inflating the supply would boost GDP as well (especially as tourists flooded Greece, which relies on tourism).

Ditto Italy.

With no inflation option, and with feckless weaklings for leaders who refuse to cut outlays or enforce taxes, Greek defaults. Italy too.

Lessons for the USA. We have to cut federal agency spending, and enforce taxes. And inflate.

Anonymous said...

TrimTabs says 160K jobs added in October.


Bill said...


Isn't TrimTabs usually high on its estimates for job growth?

Anonymous said...

No, not really. They're usually pretty accurate - once you get through the revisions and benchmark revisions at least.