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It's a never ending source of amusement that
economists can never think in advance. Instead they revise estimates
after the fact to be in line with the data.
Weekly Claims Numbers
On Thursday the weekly claims numbers
come out. I am writing this Wednesday evening.
The number 4-week moving average of weekly unemployment claims is relatively easy to call. The number to beat is 438,500.
Over or Under?
Expect a drop (an improvement)
in that number.
In light of recent data a
drop may see counter-intuitive but it is highly likely.
The reason is simple. The
last four weeks' claims numbers
are, in order: 424K, 414K, 438K, and 478K.
478,000 drops off the list.
It will be replaced by the numbers for the
week ending May 28. Unless that number
is greater than 478,000 the moving average will drop. I will take the under on 478,000 and thus the under (expecting a drop) in the
moving average.
My guess is the 4-week average will be between
420,000 to 430,000. For an actual guess, I select 427,000.
If the number is lower expect the bulls to trump it up. Instead it will
simply reflect an abnormally high number dropping off the average.
Monthly Payroll
Report
Gaming the 4-week moving average
of unemployment claims is
the easy part. The tough
part is gaming Friday's monthly payroll report.
Two days ago I would have taken the "way-under"
in regards to economic estimate
consensus. I meant to mention that
in Market Ticker in
regards to the Slowing Global Economy,
but I forgot. Apologies offered.
However, in light of recent
"unforeseen" by economists
news, economists' estimates
are now far lower.
Economists rush to mark down payrolls estimates
Please consider Economists rush to mark down payrolls estimates
Reflecting one of the largest
one-day mood swings in recent memory, the downward revisions now place last month’s
job growth at 125,000,
the weakest since the
68,000 positions created in January
and down from the average
of 233,000 over the past three
months.
As the sun rose on a steamy
Wednesday in Washington, economists
polled by MarketWatch had been looking for growth of 175,000 in nonfarm payrolls for May, a consensus figure representing
a decline from a healthy 244,000 in April but still
passing for strength. The nation’s
unemployment rate was expected to reverse April’s
slight uptick and fall to 8.9%.
First-time claims for unemployment benefits rocketed to 474,000 in
late April — the highest
level in nine months — from under 390,000 earlier in the month. Claims have since fallen back, coming in at 424,000 for the latest week.
Analysts tended to dismiss the claims data as an aberration. They saw continued
strength in hiring, and some were hopeful
that more than 50,000
jobs created by McDonald’s Corp. might offset any weakness in other sectors.
But this confidence cracked
soon after data based on payrolls handled by Automatic Data Processing Inc. showed that only 38,000 private-sector jobs were created in May — extraordinarily
weak given that economists were expecting a gain in the neighborhood of 175,000 jobs.
Adding fuel to the fire, later in the morning, the
Institute for Supply Management’s
May survey of factory supply managers was disappointing. The ISM factory
index sank by nearly seven points to a 53.5% reading,
the largest drop in nine years.
Who cut forecasts and by how much
·
“We have no choice but to revise down our payroll estimate” in
light of the weak ISM and ADP reports, said the economic team at Bank of America Merrill
Lynch, in a note announcing they
had sliced their forecast to 125,000 nonfarm payrolls for May from the prior estimate of 165,000.
·
“We continue to expect a loss of 25,000 public-sector
jobs but have reduced our
forecast for private payrolls to 100,000 from 200,000,”
said Julia Coronado, chief economist at BNP Paribas.
·
Economists at Goldman Sachs cut their forecast for Friday’s government employment report to show 100,000 nonfarm
jobs added in May, down from
150,000 previously.
·
LaVorgna trimmed his forecast
for nonfarm payrolls to
160,000 in May, down from a prior
estimate of 225,000
·
Stone
& McCarthy cut its forecast in half, to 100,000
jobs.
·
Jim
O’Sullivan,chief economist at MF Global, cut his forecast
for May jobs growth to 90,000 from
150,000.
·
IHS
Global Insight now expects
a gain of 135,000 nonfarm jobs in May, down from a forecast of 175,000 before the day’s data were released
Did the Lemmings Overshoot?
It is very difficult to know if the lemmings overshot
or not. On one hand McDonald's allegedly added 50-70 thousand jobs and those jobs may affect the
establishment survey. However,
no one knows because the
BLS in its infinite
"wisdom" will
not confirm who is in the survey.
Moreover, burger-flipping
jobs tend to increase in summer
months so one has to seasonally adjust. Then again, 50-75K is likely to be in excess of seasonal adjustments.
Finally, I do not know if McDonald's is in the ADP survey either. Regardless, picking a number is
a crapshoot. It always is, but particularly true now.
The Real Deal
It really does not matter if McDonald’s added
50,000 jobs or not. Flipping burgers will not fuel a recovery. Moreover, even if
McDonald’s did add that number of jobs, it is a one-time affair.
I wonder how many desperate engineers or recent college graduates took those jobs out of desperation.
The sad fact of the matter is that
unemployment has been dropping
for a year based on
burger-flipping jobs, part-time jobs, or people dropping out of the labor
force.
Since April 2008 6,484,000
dropped out of the labor
force. In the last year alone,
2,916,000 dropped out of
the labor force.
For a discussion of exactly what
questions the BLS asks to determine
the unemployment rate, please
see Reader Question Regarding "Dropping Out of
the Workforce"; Implications of the Falling Participation Rate
Here's the real kicker. In the last year the number of people employed FELL by 292,000! Yet.
miraculously the unemployment
rate dropped nearly 1%.
On that count, the unemployment
rate should have risen at least 1%.
What to Expect
on Friday?
Garbage. That's what.
Officially I will take the under on jobs and the
over on the expected unemployment
rate of 8.9%. For a guess on the latter, 9.2% seems reasonable on the data
(and that was my opinion before the ISM and
ADP reports). However, Lord only
knows how many people the
BLS might say dropped out of the labor force.
If burger flipping saves
the day, it won't last.
Mish
GlobalEconomicAnalysis.blogspot.com
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Thoughts on the great
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