Job Ads Signal Warning for Labour Market

ANZ released their monthly job add series today which showed job advertisements fell a seasonally adjusted -4.9% in August after a -0.3% decrease in July. The total number of advertisements in August was -0.3% lower than 12 months ago. How good a predictor of employment growth is this series? According to the ANZ website:

It has historically proved to be a very good indicator of future labour market conditions and thus, is extensively relied upon for forecasting employment growth.

But lets not take ANZ's word for it, what does the ABS say about it? The ABS found that:

ANZ (newspaper) Job Advertisement Series leads peaks in employment growth by one to three quarters, and troughs in employment by zero to two quarters. The ABS analysis finds that the ANZ Job Advertisements Series has a correlation coefficient of 0.75 with employment growth at a lead period of three quarters.

And here is a pretty graph to prove it.


Note that the correlation relates to Newspaper based ads, and since a little thing called the internet caught on a few years back that is no longer as reliable. Looking at the internet data shows that it is not a good predictor of future labour market growth.

However the trend is clear, job ads whether Newspaper or Internet based have fallen sharply over the last 6 months. Taken together with recent layoff announcements and a general slowing in the economy is all the evidence I need to draw the conclusion that we can expect a softer labour market in the coming months.

Wesbury Gets His Ass Handed to him..... AGAIN

Frequent readers of this blog will know the utter contempt I have for Brian Wesbury. If you would like to refresh your memory, please see the following posts:

Behind the Curve or on Another Planet?
Permabulls in a State of Desperation
Joe B. Rips Brian Wesbury a New Asshole

That Wesbury is incompetent is clear. However it's comical the kind of stuff he is now sprouting. 12 months ago he could actualy point to real data to support his case, now he just making things up. Friday was a perfect case in point.

In relation to Friday's dismal jobs report, Wesbury made the claim that the unemployment rate jumped significantly not because a huge amount of jobs are being lost but because there has been a surge in the labor force, or in other words the amount of people looking for work has increased dramatically in the last 6 months.

Then John Ryding of RDQ Economics absolutely bitch slaps Wesbury by pointing out that the labor force participation rate, that is the percentage of people of working age in the labor force has remained steady since March and quotes the exact numbers whihc anyone who read the report would know.

You can clearly see from the expression on Wesbury's face that he knows he's been caught out in a lie, he's absolutely lost for words and stutters his way though some insignificant point. Then to prove that he is still in denial he drops this doozy to finish the show;

“….between December and June, gasoline prices went up 17 cents a month, it was a killer, people were shocked, and I believe that’s what we’re seeing here, it’s just a shock to the system, we’re now bouncing back, auto sales soared and truck sales soared in August, I think this economy is nowhere near a recession."

Thanks for clearing that up Brian, it's just the shock of oil prices, the economy is doing just fine. The only shock going on is the realization from Wesbury that he has gotten it so horribly wrong. Click on the image below to watch the clip.


Is America Working?

US Employment Continues to Deteriorate

On Friday, the US Bureau of Labor Statistics released the monthly non-farm payroll report which showed a net -84,000 jobs were lost in the month of August. That makes the 8th straight month of job losses for the US economy. Below are the main job loss and gain catergories;

construction -8,000
manufacturing -61,000
retail trade -20,000
service -27,000
prof & bus services -53,000
leisure & hospitality -4000
education & health services +55,000
government jobs +17,000

Also of importance were the revisons to prior months. And here is why they are important. Back in July, on the eve of the NFP report I noted that we could see triple digit declines (more than -100k) in NFP's for June. The report subsequently showed job losses of only -62k. Then last month it was revised to a loss of -51k . Yesterday June was revised to a loss of -100k. So it pays to look at the revisions. Total revisions caused an extra -60k in job losses to be recognized for the preceeding two months.

The unemployment rate soared to 6.1%. Of course the permabulls said this was an aberration caused by more people staying on the recently extended unemployment benefits. Remember that the permabulls said the spike in the unemployment rate from 5.0% - 5.5% from April to May was due to teenage workers entering the workforce. Interestingly, that aberation has stayed.

Debate still rages at whether the US is in a recession. The above chart says quite clearly the US is in recession. The only time you see sharp upward spikes in the unemployment rate are during recessions.

Lastly it wouldn't be a NFP report without talking about the infamous birth death adjustment. Just to recap, the B/D adustment tries to estimate the number of jobs lost as a result of businesses going under and the number of jobs added as a result of new businesses being created. Incredulously, the BLS claims that a net 125k jobs were created in August. Yeah right.

Robert Shiller on Home Prices

Robert Shiller is a leading expert on US Home prices and is the co-creator of the widely cited Case-Shiller Home Price Indices. Here is the most interesting quote from the interview for mine;

"There's a lot of misconceptions about home prices, people think that there is a strong historical uptrend to them. In fact by my data there is not. In fact home prices in the United Sates if you correct for inflation, in 1990 were about the same as they were in 1890."

Well worth a watch.

ADP Report Suggests Modest Declines in NFP's

Yes it's that time again when we get probably the most watched yet most unreliable economic data of the month. The ADP employment report released today is seen as a proxy for tomorrow's non-farm payroll report from the bureau of labor statistics.

Today's ADP report for August saw a decline of -33,000 in private sector payrolls. Remember the NFP report includes government jobs. The general rule of thumb is to add 25k -30k. That would suggests the BLS report should show a flat reading for August.

However as mentioned many times here before, the ADP report is notoriously unreliable in predicting non-farm payrolls from month to month and has been fairly consistently on the high side compared to the BLS number.

So basically you can forget about the ADP report. You might as well pick a random number anywhere between -150 and +50k for tomorrow's NFP number and you'll have as much chance as any economist of getting it right. And don't forget to pay attention to the previous months revisions.

Aussie Growth Sluggish in Second Quarter

Australian GDP grew 0.3% in the second quarter according to a report released by the abs today, lower then forecasts of 0.4% by economists. That represents the lowest quarterly growth rate since the fourth quarter of 2004. The major highlight for me was that Household Consumption Expenditures were down for the first time in 15 years, dropping -0.1% in the June quarter.

Also this week we've seen separate reports on the manufactuing and services sectors. The Performance of Manufacturing Index registered a reading of 47 in August making it the third straight month of contraction.

Meanwhile, the Performance of Services Index fell to its lowest level since inception five and half years ago and has now been in contraction mode for 5 straight months.

On the back of today's data the Australian dollar continued to decline against other major currencies and the SFE futures market increased the likelihood of another 25 bps rate cut by the RBA in October to 88% up from 83% yesterday. The data continues to come in on the weak side and if that continues over the next few weeks another rate cut in October is looking more and more likely.

RBA Waffles, Markets Disappointed

Well, if you thought an RBA rate cut might spark a rally in equities you would have been wrong. While there was no surprise the RBA didn't go 50 bps, the decision at today's meeting to cut 25 bps was accompanied by less than inspiring commentary about the likelihood of further cuts. Thus the stockmarket abruptly gave up the gains made earlier in the day.

I rarely comment on the reasons the stockmarket goes up or down on any given day but the reason for today's afternoon reversal was clear. Basically the RBA waffled on about the "opposing forces at work" as it has done for the last several months. Sure, inflation has not gone away as yesterday's TD securities, Institute of Melbourne inflation gauge reminded us, showing inflation at a 4.2% annual rate, however as mentioned before inflation is a lagging indicator and it will prove not be the problem the RBA thinks it is in the coming months as we transition towards a more deflationary environment.

At the end of the day the language used in the RBA's statement, whilst not closing the door on further rate cuts, left some doubt as to if and when more cuts would be forthcoming. The RBA made clear that any further decisions will be data dependent. As one economist put it;

"It's not as dovish as we thought. The guidance...is quite clear that they're looking month to month and meeting to meeting, and it just depends on how things evolve with the economic data, the currency and the global financial conditions,'' Stephen Walters, chief economist with JP Morgan, told Reuters.

And so we will continue to monitor the data as it comes in. Currently the cash rate futures market is pricing in an 83% chance of a 25 bps cut in October. I think we can expect to see more weak data in coming months that will lead the RBA to cut at least once more before the year is out.

Click on this link for the full RBA statement.