One unfortunate detail that I have not seen discussed yet from today’s BLS employment report(s) comes from the “Establishment” survey. Here’s a LINK. If you scroll to page 5 (Summary table B) and go to the very last line, you will find the one-month diffusion index for the manufacturing sector of the economy. This comprises 81 separate industries out of 266 today industries, so it’s a large part of the entire economy.
50 is a neutral reading for a diffusion index. Below 50, more respondents are seeing decline; above 50, more are seeing increase of whatever is being measured. In this case, it’s job hiring-firing trends that is the variable. One good thing about diffusion indices is that they are not revised often, and not much if they re revised.
The past two months, the manufacturing jobs diffusion index has been right around 39 — quite poor. Two months ago, it was 49. One year ago, it was 54.
Manufacturing does not function in isolation. After all, retail stores (service sector) mostly sell manufactured goods, and advertising agencies (service sector) advise retailers how to bring people to shop at their store or website.
Whether this data point is a leading indicator of the general economy is not something I’ve researched yet. And the effects on investment decisions are mixed, even if one makes much of the topic of this blog post. For example, if one owns a biotech stock, I see no reason to alter one’s view of its proper price based on whether manufacturers are hiring more than they are firing, or vice versa.
But in general, when this measure of manufacturers’ hiring-firing is this low for two consecutive months, it would appear to be a red flag. Unlike the Establishment survey employment data, which undergo extensive revision, this is not revised much (to repeat myself). What are these companies seeing to be so tilted against hiring? Also, what are they seeing that numerous Fed surveys and private diffusion studies are missing, which do not show this much negativity? (My bias is to trust the comprehensiveness of this Federal, nationwide survey over the smaller ones.)
Here’s a “bonus” negative economic indicator I came across today on RealClearMarkets (LINK). This brief post shows an interesting correlation with a recent sharp uptrend in public companies that have decreased or eliminated their dividends. Eerily, if the ECRI call that a new recession (as will be judged or not judged by NBER) began in the U.S. in May or June is correct, than the number of companies with dividend reductions in 2008 and the number in 2012 is similar for the 4th or so month of recession.
Of course, I am “rooting” for there to be no recession now or ever again in the United States. My mindset as an investor, though, is to try to think of upside and downside scenarios that might actually prove to be more correct than the mainstream no-current-recession consensus (which is usually correct, after all), and thus to avoid the “tail” risks of being blindsided by a sudden shift in the consensus that moves markets rapidly and massively against me.
Overall, I see nothing in today’s BLS data that indicates that the Fed will change any of its plans regarding QE 3.
i am rooting for a recession to have occurred yesterday.
Lets get it over with. Lets go back to a ‘real’ economy, that has real downturns, real recoveries, and no more money mandarins playing financial gods over our lives.
No one wants a recession but when Federal policies drive us there its not in our control or fault. 4th gtr 2011 growth was 4.1 1st qtr 2012 was 2.0 2nd qtr was 1.3 — add to that that the last three months had less than seller economic news and the real possibility of massive tax increases in January along with the start of Obama Care; and you do not have any justification for projecting growth.
So why would there be the biggest monthly increase in employment from BLS Table A-1 since January 2003?
Dave
David asks, “why would there be the biggest monthly increase in employment from BLS Table A-1 since January 2003?” Possible answer: An increase in Federal employment.
Dave, not no one. i want one, frankly i think we’re already there only it will be too late to matter for the purposes i crave.
“I am rooting for there to be no recession now or ever again in the United States.”
That’s like rooting for all the bears and wolves to die and all the rats and bugs and trees and bees to live forever.
I’m not sure what gave you the notion that QE3 would be cut short based on those dubious employment numbers. I follow several fields via my own survey of various ‘employment’ websites such as monster. I’ve seen virtually no change for the past two and a half years. Job postings in my target technical fields remain at 1/10 of what they were prior to the 2008 crisis (of course you could argue companies are not using such sites anymore). I’m interested to see if the velocity of money pops up but that won’t be available for a few months from the FED.
Seeing misery everywhere in the midwest although new commercial real estate appears to be expanding despite a plethora of existing store closures. This is not the case for my east coast observations.
Would you build a new shopping mall across the street from an existing complex where half the stores have closed? If your answer is NO then you are not wise enough to be a real estate developer.
A bleak sense of boding is smothering the land.
The DC is absolutely correct that manufacturing is finally rolling over. This is the real reason for the massive increase in part time jobs:
PRESIDENT HOUDINI THE EMPLOYMENT MAGICIAN
All great magicians employ misdirection to create miraculous illusions, leaving their audiences stunned and confused. President “Houdini’s” miraculous creation of 873,000 jobs in the month of September magically drove down the national unemployment rate from 8.1% to 7.8%, just as absentee voting begins. The trick left Republicans and economists equally befuddled, since the last time a similar monthly jobs increase appeared was June of 1983 when the economy was growing at an astronomical 9.3% annual rate. But looking behind Barack the Great’s smoke and mirrors reveals that the President’s highly controversial July suspension of the “workfare” requirements that welfare recipients must actually do real work to be counted as employed seems to have dramatically reduced the U.S. Labor Department’s unemployment rate.
The Bureau of Labor Statistics publishes two monthly surveys that measure employment levels and trends: the Current Population Survey (CPS), also known as the “household survey”, and the Current Employment Statistics (CES) survey, also known as the “payroll survey”. With most economists estimating the current U.S. economic growth at an anemic 1.5%, it seemed ludicrous that the Obama Administration could report a monthly gain of 873,000 jobs in the household survey, just short of the all-time record 900,000 jobs gain in June of 1983, when under President Ronald Reagan the economy was growing 6 times faster at 9.3%. In fact, the same household survey report showed a recessionary slide of 195,000 jobs in July and another 119,000 decline in August. Adding to the suspicions regarding the credibility of the household survey, the more reliable “payroll survey” that tracks the rate of jobs growth through IRS withholding data was unchanged from last month.
After the report, the internet “blew-up” with conspiracy theories that the employment numbers must have been consciously manipulated by the U.S. Labor Department to help the President’s reelection odds. Even the highly-respected former CEO of General Electric, Jack Welch, tweeted: “Unbelievable jobs numbers..these Chicago guys will do anything..can’t debate so change the numbers.”
Like all spell-binding illusions, the real set-up for this phenomenally great employment report was engineered back on July 12, 2012, when the Obama Administration announced an Executive Order that eliminated President Bill Clinton’s highly-praised workfare reform that required welfare beneficiaries to get real job in order to continue to receive payments. According to former Clinton Advisor Dick Morris, in 1996 Senate Republican Majority Leader Trent Lott stated: “I don’t want anyone going to a truck drivers’ school that advertises on a matchbook cover and avoiding work.” The Republicans included 42 U.S.C. § 615(a)(2)(B) in the Temporary Assistance for Needy Families (TANF) reform legislation to make sure every states’ welfare recipients were required to work in a real job and also inserted section 607 to prevent future secretaries of Health & Human Services (HHS) from waiving the real workfare requirement.
With 1.4 million of the two million families receiving TANF payments not actually in real jobs, Obama took heat for changing the work rules. The Heritage Foundation warned:
“in the past, state bureaucrats have attempted to define activities such as hula dancing, attending Weight Watchers, and bed rest as ‘work.’ These dodges were blocked by the federal work standards. Now that the Obama administration has abolished those standards, we can expect ‘work’ in the TANF [welfare] program to mean anything but work.”
Presidential candidate Mitt Romney, a former governor, howled “the linkage of work and welfare is essential to prevent welfare from becoming a way of life.” Republican Congressional leaders screamed the waiver was a “blatant violation of the law” by allowing states to substitute “vocational educational training or job search/readiness programs” to “count as well” in meeting the work requirements.
But as the heat dissipated and the campaign news cycle moved on, President Houdini was positioned to triumph. No one knows just how many of the up to 1.4 million TANF welfare recipients have now been re-designated by the state welfare agencies as “employed”, but isn’t it just magical how 873,000 people started working last month. Is Barack Obama really the new Ronald Reagan?