February 13, 2018

Now That Things Have Settled Down for a Day, the Stock-Market Mystery …

Filed under: Economy,Taxes & Government — Tom @ 7:53 pm

… is why no one, even the Trump-bashing media, which but for their financial myopia would have jumped all over this, blames the good-looking on the surface but in fact lousy January employment report for the recent declines and in the stock market.

In my view, the smart money dug deeper, saw January’s historically awful raw job losses (both total nonfarm and private sector), lost faith in the markets’ supposedly endless upward trajectory, and pulled things back to where they were a few weeks earlier.

As a refresher, the seasonal adjustments didn’t at all reflect the underlying reality when comparing January’s poor raw numbers to the previous four years:

NSAvsSAanalysis0118

If they had, as seen above, the seasonally adjusted results *should* have been 231,000 lower for total nonfarm, meaning a loss of 31,000 jobs, and 222,000 lower for the private sector, meaning a loss of 26,000 jobs. The raw results which form the basis for the seasonally adjusted results are subject to revision, but the degree of the seasonal overstatement shouldn’t change by much, if at all.

There are two ways to look at this. The first is that January was an isolated bad month. If there’s good reason to believe this, I haven’t seen it.

The second is that the job market, and by extension the economy, isn’t as strong as most people think it is. I’m afraid there’s something to this, and that the markets figured it out. This explaine sudden concern over interest rates which we haven’t seen for quite a while, even though the Fed’s posture really hasn’t changed. This concern was delayed until the Monday after the payroll report when everyone figured out that the Fed was going to trust the rosy seasonally adjusted figures instead of the gloomy raw numbers.

The potential good news in all of this is that the Trump-GOP tax cut may have come just in time.

The wild card in all of this, especially when considering ADP’s much higher reported private-sector job additions, is whether BLS has been sandbagging reported payroll job additions. But there’s no reason to believe BLS would have done this more heavily in January than in previous months — and it doesn’t explain away the non-reality-based seasonal conversions.

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1 Comment

  1. The differential between the U3 and U6 is still on a downward trend:

    https://unemploymentdata.com/wp-content/uploads/2018/02/U3-minus-U6-Unemployment-2-2-18-1.png

    Comment by dscott — February 15, 2018 @ 9:47 am

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