Greece, Lightening?
So last night, my wife reported to me that the cat had caught a mouse. Later that same evening, she reported another mouse. She vented her irritation on Orkin: “There hasn’t been a mouse here in ages. Orkin was here just two days ago and all of a sudden we have three mice in two days! What the heck are they doing?” I reassured her, however, as husbands are wont to do. “Honey,” I said, “the exterminators are doing a fantastic job. Sure there were two mice, but they caught or prevented another eight!”
Hey, if you can’t beat ’em, join ’em!
The January Jobs report didn’t disappoint with its quirky, hard-to-read nature. The Payrolls figure was, as I thought it might be, a bit lower-than-expected even ignoring the hearty, worse-than-expected downward adjustment to the level of payrolls to reflect benchmark revisions. Almost a million more jobs were lost in 2009 than previously estimated.
But there were some interesting signs of strength in this report. The Unemployment Rate dropped to 9.7% (actually slightly below), a major surprise. Now, the Rate itself is of course a ratio, so it is worth looking at the pieces. The ‘Rate is calculated as the Unemployed (people who have been looking for work, but aren’t working) divided by the Civilian Labor Force. Sometimes odd changes in Unemployment happen because of a quirky jump in the Civilian Labor Force, and we tend to de-emphasize these. In this case, however, the Civilian Labor Force was roughly unchanged. The sharp decline in the Unemployment Rate happened completely because of a decline in the Unemployed. In December, 15.267mm out of 153.059mmm were unemployed (9.975%, rounded to 10.0%); in January, the figures were 14.837/153.170 = 9.687%, rounded to 9.7%. So the decline in the ‘Rate came because fewer people were unemployed, and that’s a better way.
This also implies that the number of unemployed didn’t fall merely because people became discouraged and stopped looking. In that case, they would no longer be unemployed, but they would also not be in the Civilian Labor Force either. The Unemployment Rate also fell for every sub-category of worker listed (Adult males, teenagers, high school diploma, etc) except for Asian workers (where it remained flat) and Black workers (which saw their rate rise to 16.5% from 16.2%). The number of unemployed people who want a job now (one of my favorite series) declined, also a good sign. So the decline in the Unemployment Rate looks like important good news except for one teensy issue:
It’s the January number.
The Bureau of Labor Statistics cautions against comparing December and January figures in the Household survey because each year updated population controls are introduced in January, and that means there is a potential discontinuity. Otherwise, I’d be excited about a fall to 9.7% so soon after seeing 10.1% – but I think we need at least another month’s decline in the Unemployment Rate before we start to think we’ve turned the corner. And, frankly, it’s too early.
But starting next month, the decennial hiring of Census workers will pervert the data for months. The picture of the employment situation, in brief, is likely to stay muddled for a while. I wonder whether the survey measures of strength in employment … “Jobs Hard To Get” in the Consumer Confidence report, for example … will respond as much to the Census hiring. I would expect most people to discount the transitory nature of those jobs when answering a question like that. It will be interesting to watch.
Bonds popped and then slid on the news, but then began a slow rally throughout the day. Stocks slid, and oil broke hard south at one point. All of these are signs of market concern that the Greek drama would result in more financial crisis and therefore more economic crisis; or, more directly, the Greek drama reminds us that the financial/economic crisis is far from healed yet. 10yr Note futures rallied 19.5 ticks on the day. And yet, as shadows grew long over Europe there came a surprising rally in equities; commodities also rallied back some (although TIPS breakevens contracted 6-10bps on the day). The talk was of the possibility that the EU might bail out Greece over the weekend.
Oh really? Will they save Portugal, Italy, Ireland, and Spain too? I’m not really sure what form that “bailout” could take that would be very convincing, although I imagine they’ll try something simply because the alternative is hard to contemplate.
The rally took equity prices all the way back to unchanged on the day. The rally, on a questionable rumor, was redolent of the old stock bubble days of the early 2000s. Back then, the investing psychology was such that investors’ worst nightmare was not being on board for the rally. So, every sell-off from the highs was met with “dip buying.” For months, until people finally started to realize that they weren’t going to miss the next 30% on the upside, but they could very well own the 30% on the downside. Dude, even if the EU bails out Greece this weekend, it simply is not worth the chance that they don’t, or that the package is not as impressive as people think is necessary. There is no need to pound back into stocks merely because they are 8% off the highs and that might be the extent of the selloff.
There is no economic data due on Monday, so it’s all about watching Greece and setting up for the seven Treasury auctions next week: 1-month, 3-month, 6-month, and 1-year bills, 3y and 10y notes, and 30y bonds. Just a ho-hum $175bln in securities issuance. Move along, nothing to see here!!
