Monday, 10 March 2008

NFP's confirm Recession

US non-farm payrolls declined -63k in February confirming in my opinion that a recession probably began December 07 or January 08. In addition, December employment growth was revised down to 41k from 82k and January was revised from -17k to -22k.

The chart above shows the change in the 3 month moving average of non-farm payrolls. That has now turned negative. The only times it has ever turned negative is just prior to or at the beginning of a recession. It has never given a false signal of recession. Of course that doesn't mean it can't give a false signal, just that if it walks like a duck and quacks like a duck, then it probably is a duck. Job losses were seen pretty across the board.

  • Manufacturing -52k
  • Construction -39k
  • Retail trade -34k.
Government added 38k jobs so private sector employment actually declined -101k in total,

The unemployment rate miraculously fell to 4.8%. This is explained by the fact that the labor force declined by 644,000. This is not a positive, it shows that a lot of people who were looking for work are no longer looking for work. Not because they found a job but because they gave up looking.

The Birth/Death (B/D) adjustment magically added 135k jobs in February. It's tough to believe that the financial services industry added 10k new jobs, but hey, the B/D adjustment is always hard to believe.

There are really no positives in this report at all. That didn't stop some Wall Street lemming economists from maintaining a recession is still not evident. There is still a huge amount of denial out there, particularly with respect 2008 earnings projections which are forecasting year over year profits to rise more than 17%.

Once market participants embrace recession as reality instead of living in fear and lower their expectations on corporate profits, the quicker they can move on. However that still seems to be a ways off yet.