With one of the STRANGER NFP prints this morning when all things are considered, I ironically sent this email to a member yesterday as we talked about the upcoming NFP this morning.
"Tomorrow is the NFP, the F_O_M_C seemed to act like the economy was hunky dory, but with the first Q1 estimate printing at 0.1% yesterday, that's not so much the case. As far as employment, mostly bad this week, there were a couple of outliers.
It may be a little conspiracy theory, but I think the F_E_D NEEDS to exit accommodative policy, a bad NFP print wouldn't be a game changer, but it wouldn't help their plight either. I REALLY don't put it past the powers that be to massage the data with seasonal adjustments to give them the print they'd like to have to justify continuing to exit accommodative policy.It seems like retail doesn't get it that the F_E_D wants out and are still hung up on a bad NFP print is good news as if the F_E_D will start a new QE program and a good print is bad news and they sell.
We'll see at 8:30"
Well isn't it interesting that the consensus of 218k, Goldman's "Whisper number of as high as 240k jobs added" was blown away by the actual print of 288k (previous 192k)!
Even more helpful for the F_E_D to exit accomodative policy (even though guidance was recently changed from quantitative to qualitative), the Unemployment Rate dropped from 6.7% to an AMAZINGLY LOW 6.3% on consensus of 6.6%!!!
That's below the F_E_D's initial guidance of 6.5% being the threshold for rate increases until they recently took out the quantitative aspect (the 6.5%) and changed guidance to very ambiguous and arbitrary "qualitative", meaning no guidance that can be counted on.
EVENTUALLY (Very soon in fact), I THINK THE MARKET IS GOING TO SHOW IT DOES NOT LIKE THIS PRINT EVEN THOUGH IT IS NOT OFFICIAL GUIDANCE ANYMORE, IT'S STILL THE AREA THE F_E_D WAS LOOKING FOR TO RAISE RATES AND THAT'S WHAT THE MARKET IS MOST AFRAID OF.
How did we get to this amazing beat?
When Congress passed a budget earlier this year (February if I'm not mistaken or thereabouts), they cut out extended unemployment benefits meaning 3 million Americans would drop off the unemployment benefit rolls through 2014, this NFP saw a -800k decline in the labor participation rate as you are no longer counted as part of the labor pool once you drop off unemployment benefits, leaving 92 MILLION Americans OUT of the labor pool thus dropping the Labor Participation rate (this print alone) from 63.2% to 62.8%WHICH IS THE LOWEST PARTICIPATION RATE SINCE JANUARY OF 1978!!!
With a smaller work pool because unemployed persons not on benefits are no longer counted as unemployed, the number of unemployed persons is a much smaller factor then it truly is, It's data massaging at it's finest!
The number of Americans that just were counted as having dropped out of the labor force in this NFP release because they no longer collect unemployment benefits, thus are no longer counted as "unemployed" or part of the labor pool is at THE SECOND HIGHEST MONTHLY INCREASE EVER!
So why is the market celebrating an unemployment rate of 6.3% when you'd think it would be jumping off a bridge? I suspect it's because the non-massaged data in the form of the Household Survey showed a decline of 73k people, not a surge of 288k.
I would give the market a couple of hours to chew this over and get past the knee jerk reaction, the ultimate question is really what was posted in the email above, "When will the F_E_D raise rates?" And with cover like today's NFP print, they have justification to do it a lot quicker than the market might be comfortable with, considering guidance is now completely arbitrary or excuse me, "Qualitative", well... THIS WAS A QUALITY PRINT FOR THE F_E_D...
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