Saturday, 4 October 2008

Jobs Crumble, The Bailout Rally That Never Was

The ADP report proved its uselessness as a proxy for non-farm payrolls as the BLS reported a drop of -159,000 in September. Here are the details in brief:

Construction -35,000
Manufacturing -51,000
Retail -40,000
Service providing -82,000
Professional and Business services -27,000
Education and Health services -25,000
Leisure and Hospitality -17,000
Government +9,000

As you can see the losses were broadly based. The good old Birth/Death adjustment estimated that 42,000 new jobs were created in September. The BLS also made the noted the following:

Hurricane Ike

Hurricane Ike struck the east coast of Texas and portions of coastal Louisiana on September 13th in the midst of the establishment survey reference period. For the weather conditions to have affected payroll employment, people would have had to be off work for the entire pay period and not paid for the time missed. Therefore, it is unlikely the storm had substantial effects on the national employment estimates.

In the household survey, people who miss work for weather-related events are counted as employed whether or not they are paid for the time off.

So the permabulls are left with no excuses this month. Whichever way you slice it, this is a very weak report. It took longer than I expected to see losses in excess of 100k but it has finally arrived and they will continue for some time.

If you can take anything positive away from this report is was that the unemployment rate remained at 6.1%. Also, the BLS today gave its preliminary revision to payroll numbers between March 2007 - March 2008. The final revision will be announced with January's NFP report in February next year.

I've been saying for some time that the revisions would show that the BLS has been overestimating job growth. Whilst the BLS did announce an overstatement of job growth it amounted to a paltry 21,000. That may be changed again before January but at this stage it looks like the revisions will be minimal.

The Bailout Rally that never was

Interesting to watch the market action after the Bailout Bill passed, the market immmediately came off its highs and then traded in a range before falling into the red at the close.

As stated previously, I never thought this bailout would stop the stockmarket from going lower, but I thought there may be at least a rally. However looked at in terms of the market action earlier in the week you could make the case that Friday's sell-off makes sense.

On Monday the US market was already down around -300 points even on the expectation of the bill being passed. Then when it failed it fell a further -500 points. In that light, the market reaction might make sense. That is, that the market doesn't like the bill but that having a bill is better than having no bill at all.

However, again it should be emphasized that investors should pay attention to the credit markets going forward to establish whether the passage of the bailout bill has restored some confidence.

On whether the bailout bill will actually help is unknowable at this point in time. I've outlined recently why I don't think it will do much good but we are in unchartered territory here. Expecting the unexpected. Governments around the world will pull out all the stops, if credit markets don't start to improve. Don't be surprised if we see some kind of co-ordnated rate cut from the Fed in concert with Europe in the next couple of weeks.

However rate cuts, as I said they would when the Fed started cutting rates last year and have shown since, will not help. As mentioned yesterday I think the market now has to come to grips with a fairly nasty recession and a corporate earnings outlook that continues to deteriorate which has not yet been fully factored into stock prices.