A different perspective on NFP from Barry Ritholtz blog
NFP is out shortly, and the consensus is for an ugly number. U3 Unemployent is expected to rise to 8.5%, NFP loss is for 660k, according to a
Bloomberg survey. Since the recession began in December 2007, the economy has already shed 4.4 million jobs. A 600k number will push the total recession losses over the 5 million mark.
One of the sillier things I keep hearing from the usual suspects it that since NFP is a lagging indicator, it doesn’t matter much.
This is an inappropriate way to analyze the employment data.
It is true that as a whole, employment data lags the cycle. This means the data series will still be negative even after the economy flips positive. On the other hand, Leading Indicators flip positive while the economy is still contracting.
While NFP lags the economic cycle, one should simply disregard the data. One cannot conclude — as some people have on TV — that the economy is improving and therefore NFP can be dismissed out of hand as a lagging indicator
Instead, if you are dissecting this data, you should be considering which parts of NFP are not lagging, and pay close attention to that. That means looking a three components
-Temporary Help
-Hours worked
-Income
All three of these tend to lead the cycle. These data points were falling long before either the market or the economy turned south. I expect they will stabilize before the economy improves. If I have a few free minutes later, I will update this data later.
Earlier this
morning, I noted that although NFP
lags the economic cycle, there are components of the Employment data that
lead the economy. Let’s take a quick look at these elements:
• Total hours worked fell by 1%. Often times, employers who are trying to hold onto their best employees will cut overtime and hours in order to avoid layoffs. As of this month, the average workweek fell to 33.2 hours, the lowest on record dating back to 1964.
• Temporary help services lost 72k workers. This suggests that the bottom of the recession is not yet in, and that further contractioin is likely.
• Average hourly earnings rose 0.2% m/m. That is in line with the prior trend. Average weekly earnings dipped 0.14%, likely following the slight loss in total hours worked.
