I rarely comment on a single report when they are first released because, well, they are revised by such a large amount the first number is essentially meaningless. Rather, I look at the overall trend. But, as I read this one there is some funky stuff in it.
I said in yesterday’s post that the ADP number we saw was not accurate because of the zero number of construction jobs it said were created. The BLS number today puts the construction creation at +18k but then puts the number at building material/garden supply retail sector at -10k. This is a direct contradiction to what we are seeing in home building, the architectural index and the home remodeling index. All are rising and they bring employment in that sector with them. The indexes are correct and the employment numbers, who we all know are prone to huge revisions are wrong. They are too low.
More on builder labor shortages
This report is a huge headfake….
This week’s economic releases have disappointed short term investors with some forecasting a gain of 200,000 for the Establishment Survey vs. 88,000 reported. Light Vehicle Sales SAAR(Seasonally Adjusted Annual Rate) came in at an estimated 15.5mil pace estimated by Edmunds which continued the trend in place since early 2009. The Household Survey which includes the self-employed showed a drop of 206,000 from the previous month but remains near the lower range of the trend in place since July 2011, a monthly rate estimated at ~283,000. The STD(Standard of Deviation) for the Household Survey is +/- 436,000 and it is the trend which is important not one month’s report vs. expectation.
The primary leading indicators for employment seen this week, ASA Staffing Index, Help Wanted Online and Light Vehicle Sales all point to higher employment 6mos-12mos ahead.
The pre-market trading appears to reflect some level of panic as I write this note. Taken in the context of the economic trends, selling equities based on this week’s reports is not justified historically. Just the same, there is a considerable contingent of market participants who base their decisions on single economic reports even though the evidence is quite clear to many that previous reports are often revised higher during an economic uptrend. Such is the case with today’s Establishment Survey report:
From the Establishment Report:
“The change in total nonfarm payroll employment for January was revised from +119,000 to +148,000,and the change for February was revised from +236,000 to +268,000.”
The full report can be found at the link: Bureau of Labor Employment Report. If one adds the upward revisions to today’s report, the net changes in the Establishment Survey from the Jan 2013 report is 158,000 higher. The Establishment Survey is always an estimate and undergoes revision every month as additional data becomes available to improve the reports of previous months. The Household Survey is not revised but every few years using income tax filings as a means of adjusting the various algorithms. The Household Survey is a telephone survey of ~60,000 households which is scaled up using statistical analyses to count the 143,286,000 reported today. Importantly, the statistical error in this monthly report is +/- 436,000 which is 0.304% When the month-over-month trend is a growth rate of 283,000, the error to any single months report is +/-436,000. This STD places the monthly change somewhere between 719,000 and -153,000. So, it should be clear from this discussion that it is the trend over a 6mos period or greater which should be considered for investment decisions and not the actual reported monthly figures.
The current interpretation that falling gold, copper, oil and other commodity prices indicates slowing economic activity is not reflected in today’s data. My interpretation is that the high prices of commodities which we have experienced the past several years are due to fears that the Fed had printed too many US$ and that we would see considerable inflation and a falling US$ vs. other currencies. We have not seen this impact! What we have experienced is a historical business recovery and a US$ which has remained stable. Commodities which have been “financialized” by large investors expecting to gain from a weakening US$(commodities are priced in US$-lower US$ = higher commodity prices) have become much less sensitive to economic activity and more sensitive to inflation expectations. The fact that the US$ has not suffered from “dollar printing” while the economy is recovering is causing some large investors to leave commodities to buy equities. It was recently reported that George Soros and David Einhorn have sold their gold holdings the 3Q12. Soros calls gold the ultimate asset bubble. Link: Soros Calls Gold Ultimate Asset Bubble
From the Soros link above:
“The main driver behind gold’s weakness this year has been the focus on global growth and that’s meant rotation out of defensive assets like gold.”
Optimism remains warranted in my opinion. I remain quite positive and urge investors to buy on any equity weakness. Equities should be higher with employment and economic activity moving higher over the next 6mos-12mos.*