David A. Rosenberg
June 5, 2009
Chief Economist & Strategist
Economics Commentary
drosenberg@gluskinsheff.com
+ 1 416 681 8919
MARKET MUSINGS & DATA DECIPHERING
Coffee with Dave
WHERE PERCEPTION DIVERGES FROM REALITY
The headline nonfarm payroll figure came in above expectations at -345,000 in
May — the consensus was looking for something closer to -525,000. The
markets are treating this as yet another in the line-up of ‘green shoots’ because
the decline was less severe than it was in April (-504,000), March (-652,000),
February (-681,000) and January (-741,000). However, let’s not forget that the
fairy tale Birth-Death model from the Bureau of Labour Statistics (BLS) added
220,000 to the headline — so adjusting for that, we would have actually seen a
565,000 headline job decline. At least initially, this skew to the data is being
readily dismissed.
Nonfarm payrolls
came in above
expectations, falling
‘only’ 345,000 in May
(the consensus was
closer to -525,000) …
To Mr. Market, this was not a case of employment declining 345,000, it was a
case of the rate of change improving by 159,000 from April and by 496,000
from the weakest point of the cycle back in January. So, what Mr. Market is
doing is extrapolating this so-called improvement into the future and drawing the
conclusion that employment is going to start to turn positive on a ‘first-
derivative’ basis by August, at which time we will all be bidding au revoir to the
recession.
NOT SO FAST
Changes in the second-derivative only take you so far. As an example, the best
nonfarm payroll report during the expansion was the 380,000 print on
November 2005. We never came close to such a tally again, the data began to
moderate after that point, and yet the recession didn’t begin for another two
years. So this view that we have come off the -741,000 nonfarm payroll result
in January and sequentially improved from what was a horrific credit-collapse-
induced slide, by no means suggests that a cycle of renewed job creati