Jobless numbers tomorrow–and on them hangs the trend in this market
The U.S. Bureau of Labor Statistics releases the July payroll and unemployment numbers tomorrow before the stock market opens. It’s a chance to give some badly needed new life to the “We can see the turn in the economy coming” optimism that has fueled the rally in stocks off the March 9 bottom. Or to push the market a little deeper into what is a developing case of the blahs.
The consensus among economists is that we’ll see a big improvement in unemployment in the July numbers. Or to be more precise, a big slowdown in the number of people who lost jobs in July. Nobody is calling for job growth, mind you. But the consensus projection is that payroll numbers will show a decline of just 328,000 jobs in July. I say “just” because in June job losses ran to 467,000.
Even a smaller drop than last month will still keep the official unemployment rate headed up. If the consensus is right, July’s jobs loss will push the unemployment rate to 9.6% from 9.5% in June. In other words, we’re still on our way to the 10% plus unemployment rate that the Federal Reserve is predicting before any recovery begins.
Wall Street will be watching these numbers especially closely.
The health of the financial sector, which has led the stock market rally over the last five months, depends on mortgage foreclosure and default rates peaking soon. Foreclosure and default rates correlate strongly with unemployment: Surprise! When people lose their jobs, they stop paying their mortgages. A higher than expected jobless number will lead some to ask whether bad debt has really peaked at the banks.
Still, don’t over-interpret these monthly numbers, no matter how they come out. One data point never makes a trend. Especially in this series. Jobless numbers have been historically volatile in June and July because some big manufacturers, automakers for instance, typically shut factories then to retool for new models in the fall.
Of course, that was back when we had an auto industry. Who knows that the seasonal patterns in the U.S. economy might be now.
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The rally looks long in the teeth. Big intraday reversal in financial stocks which are 70% of my position is not a good sign. Especially this reversal happened at the short term top. If the job number is good tomorrow I will sell the pop. If the job number is bad, I will sell also … Short term extremely overbought especially in the financials and solar stocks. I will take some profits here. Why not ? FAS doulbed, BAC has had a big run. The stocks that I am going to keep are those laggards of this rally such as GE, POT. They are safer because they are still laggards …
Looking to come back.
Mid to long term it is still UP !
Another bearish sign. I have been feeling really good recently with my financial stocks. Using my own psychology as a contrary indicator I should sell !
Summer usually is not a good season for stocks and we still have two months to go for the summer …
I’m thinking the number will come in at 200K, cause a big spike in equities that will force the shorts to cover their behinds and we could see one of those days that start like a rocket and finish with a lot of profit taking. If this does transpire, I’m going to be a little concerned about the dollar going into next weeks treasury auctions.
Another way to play is to sell covered calls against long position. This way I get some cash upfront and still keep my stocks. If the today’s number is really good then … I will enjoy my profit !
Jim ,
As pointed out by you earlier that China data cannot be trusted also supported by Marc Faber that China GDP is 2% and not more , today a senior China politburo leader said the same that provinces are doing some hanky panky business which boosts GDP data alone while not contributing to actual growth eg he said they make same bridges over and over again etc
Maybe the reason that Shanghai closed below 3300 support ie down 2.85%
If more and more persons start doubting China data then this rally will collapse like pack of cards also all commodity markets
Looks like we are getting a reasons to sell stocks and buy USD , your views on the extent to which USD index can rally this time …can it touch 89 in next 2-3 months ??
Your expert views are most welcome
Cheers
I am missing something …
The number of lost jobs is down from what was expected, the unemployment rate is down, and the stock market is up only 1%.
I have the same feeling. I am puzzled … Does it mean the market is pretty rational ? If it is flat to down, or it jumps up big I will definitely sell. But now it is only up mildly …
I have been charting unemployment claims from the US Department of Labor for about 6 months now. For the first time, there is a significant drop in new “Seasonally Adjusted” jobless claims. This could be a great sign, or it could be an aberration caused by the “Seasonally Adjusted” factor.
“Seasonally Adjusted” job claims are computed by taking the number of unadjusted initial jobless claims and dividing them by a seasonal factor. What is interesting here is that in the last two weeks the seasonal factor has changed from 0.90 to 1.28. According to the press reports this morning, Detroit auto layoffs have traditionally been responsible for this adjustment, as auto makers temporarily lay off employees to retool for the new model year. In a normal year, if the auto industry temporarily lays off 120K workers, this is enough to bump unadjusted initial unemployment claims from about 300K to about 420K. Changing the seasonal adjustment from .90 to 1.28 makes this temporary and predictable increase in jobless claims vanish from the adjusted government statistics.
But this isn’t a normal year. In fact the auto industry is running at low capacity. But assume the auto industry still lays off 120K workers, as it would in a normal year. Then we should see an increase in unadjusted initial employment claims of 120K over the past 4 weeks. And indeed, in the last 4 weeks the number of initial unadjusted job claims has been 568K, 559K, 581K and 671K. That’s an increase of about 110K claims, very close to the expected 120K claims. Great, this accounts for the increase in unadjusted initial job claims.
Unfortunately, the Seasonally Adjusted factor is a multiplier, not an addition factor. Since baseline unadjusted initial claims are now about 600K instead of 300K, this factor predicts an increase of 240K claims, far above the 110K claims increase we saw. That makes it look like the number of unadjusted initial claims is 130K lower than expected. The effect is to create a strong dip in the number of Seasonally Adjusted initial claims.
By the time the next jobless report comes out (4 weeks) the seasonally adjusted factor will have dropped from 1.28 to 0.86. This is possibly because in a normal year, auto retooling is complete, and Detroit is once again charging full steam ahead. The analysis here is correct, we will then see a jump in Seasonally Adjusted initial jobless claims right back into the 600K+ range, where they have been since February.
This is another case of economic formulas applied without common sense, when this yields numbers convenient to the Financial Sector. I would be very cautious in drawing any conclusions from this month’s jobless report.
While I am not sure that I followed the math of the previous post, I pretty much agree that someone is manipulating with the numbers.
One possible explanation is that this year seasonal jobs, typically filled with foreigners, are filled with desperate locals.
I do not think that anyone knows for sure, even those who are directly responsible for those numbers. Only Christmas time will tell us the complete story of economic recovery. Until then, I am playing it safe.