As was expected, employment in September rebounded and the decline seen in August payrolls of 4,000 jobs was revised into a gain of 89,000 jobs. The large August revision stemmed from a revision in the government sector where the initial job loss of 28,000 jobs turned into a gain of 57,000 jobs after the revision. On the negative side, goods-producing payrolls weakened as the manufacturing sector of the economy continues to slow. The year-over-year (YOY) growth rate for goods-producing payrolls fell to -1.33%, while service-producing payrolls declined to +1.693%.
Figure 1
Source: Moody's Economy.com
Delving further into the employment data shows that the birth-death model adjustment was responsible for the turnaround in August employment. The birth-death model (BDM) added 120,000 ficticious jobs in August, and backing out the BDM adjustment would have led to a decline of 31,000 jobs for the month. The BDM adjustment for September payrolls was much smaller, coming in at 17,000 jobs.
Figure 2
Source: Moody's Economy.com
The large gyrations seen in the government's employment data are due to the relative roll of the BDM. Over the last twelve months, the BDM has accounted for 69% of the job creation in this country. It is a scary thought when 69% of the jobs created in the most widely-used employment data set are statistically made and suspect to large revisions.
Figure 3
Source: Moody's Economy.com
The revisions are not only swinging the data numbers but also the markets, much like the revisions in the asset-backed security market with banks and financial institutions revising their illiquid assets from model to reality. The decline in the early August employment data lead to a decline in the markets as it raised recessionary fears and the upwards revised data today drove the markets higher. Who knows what next month's employment will look like? Maybe the upward August revision will be followed by a downwards September revision that will drive markets southward next month.
At either rate, instead of looking at the day-to-day or month-to-month data, those in the financial markets should be looking at the trend to tell them where things are going. The smoothing out of the data by looking at the YOY rate tells you where things are trending and helps remove the day-to-day noise. Virtually every employment indicator is pointing in the same direction, down. Not only are employment trends decelerating but they are also showing no signs of turning around either.
The household survey has typically bottomed several months in advance of the establishment survey that is the most-widely quoted employment statistic. The household survey continues to decelerate as is another leading employment indicator, temporary employment.
Figure 4
Source: Moody's Economy.com
Figure 5
Source: Moody's Economy.com
The markets rebounded today as recessionary fears subsided with the upwardly revised August payrolls as well as the growth in employment for September. However, the temporary service employment growth rate is below levels that were seen heading into the 1991 and 2001 recessions, and has already passed the level seen in the 94-95 mid-cycle slowdown period. Thus, investors should be slow to declare victory over the possibility of recession as we are not out of the woods yet, certainly not until we see signs of a reacceleration in employment with the trend reversing course.
Today's Market
The markets moved northward today as mentioned above on the employment data and continued growth seen in consumer credit, which rose $12.2 billion in August to $2.469 trillion.
The Dow Jones Industrial Average rose 91.70 points to close at 14066.01 (+0.66%), the S&P 500 rose 14.75 points to close at 1557.59 (+0.96%), and the NASDAQ gained 46.75 points to close at 2780.32 (+1.71%).
Treasuries fell with the yield on the 10-year note rising 11.7 basis points to close at 4.64%. The dollar index was down on the day, falling 0.16 points to close at 78.32. Advancing issues represented 73% and 70% for the NYSE and NASDAQ respectively, reflecting a fairly broad advance.
The best performing sectors were consumer discretionary (+1.83%) and materials (+1.75%), while telecommunications (-0.02%) and consumer staples (+0.26%) were the sectors putting in the worst performance on the day.
