Flash Update
FLASH UPDATE
December 7, 2007
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Gimmicks Mask November Payroll Contraction
SGS-Ongoing M3 Annual Growth Rises Again in November
Official CPI Annual Inflation Could Break 4% Next Week
Fed Action/Inaction Will Not Alter Fundamentals Meaningfully
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PLEASE NOTE: The preliminary estimate of November SGS-Ongoing M3 will be posted over the weekend on the Alternate Data Series tab at www.shadowstats.com. Barring unusual developments, the next Flash Update will be next Thursday, with November's "core" retail sales, followed by a more extensive Flash Update over the weekend with November's CPI details. An Alert is scheduled for Monday, December 17th, reporting summary results of the 2007 GAAP-based Financial Statements of the U.S. Government, dependent on the actual data release, now scheduled for the 17th. The December SGS monthly newsletter currently is targeted for late in the December 17th week. -- Best wishes to all for the most joyous of holiday seasons! John Williams
The November jobs report was heavily manipulated to bring in the reported 94,000 gain in nonfarm payrolls, as opposed to an outright contraction. The reported gain was statistically indistinguishable from a monthly contraction. Even though slightly stronger than consensus estimates, the data -- particularly on close examination -- were weak enough to add pressure in favor of some form of Fed accommodation at the December 11th FOMC meeting. Offsetting such pressures are surging inflation and risks to the U.S. dollar. The markets widely expect an easing, so the odds have to favor such. There likely would be dissent, however, where such a move is little more than pandering to the instant-gratification needs of a highly irrational stock market and its manipulators. Dollar selling and flight to gold should intensify.
Irrespective of what the Fed does, the impact likely will be seen primarily in short-term financial market gyrations, not in any long-term benefit. If the Fed eases, the stock market shortly will be pressing for another interest-rate fix, in an unending and intensifying no-win situation for the Fed.
The more the Fed eases, the more quickly heavy U.S. dollar selling will mount. A rate cut will not boost economic activity, and it will not resolve bank solvency issues. Further, with the U.S. markets so heavily dependent on foreign capital for liquidity, Fed easings increasingly become counterproductive for the U.S. markets and economy, as foreign investors flee dollar-denominated assets. In the now less-likely case that the Fed does not ease, the longer term outlook would be the same. Over the short-term, though, the financial-market gyrations might be more negative for stocks, and the U.S. central bank might buy several weeks of less-intense dollar dumping.
BLS Used Full Suite of Gimmicks on November Jobs. The Bureau of Labor Statistics (BLS) reported seasonally-adjusted November payrolls up by 94,000 (46,000 net of revisions) +/- 129,000, following October's revised 170,000 gain (previously 166,000). Unadjusted year-to-year payroll growth fell in November to 1.04%, versus October's revised 1.17% (previously 1.18%). The decline in November annual growth to 1.0% has historic parallels seen only during recessions. This employment report was not credible and showed indications of heavy manipulation aimed at keeping jobs growth positive but still weak enough to pressure the FOMC towards an easing.
Seasonal-Factor Gimmicks. As discussed regularly in the SGS newsletter, with monthly seasonal factors being readjusted each month as needed, the BLS can generate any desired result. Consistently adjusted and unadjusted annual growth rates suggest that November otherwise would have been reported with just a 26,000 payroll gain. Separately, seasonal factor manipulation also is evident in the downward revision to the October payroll levels. Adjusted, October was revised lower by 48,000 jobs, but unadjusted, October's downward revision was just 8,000. The seasonal readjustments allowed for reporting a net extra 40,000 seasonally-adjusted jobs in November, while the reported October gain increased to 170,000 jobs, thanks to still-earlier period data adjustments.
Unusual Bias Adjustments. November's upside bias add-factor (from the birth-death model) was 51,000, versus 103,000 in October. Aside from those 51,000 plug-number jobs not being valid, the bias was increased from 36,000 in November 2006, an unusually large adjustment, where the change in bias normally is plus or minus a couple of thousand.
In the statistically-sounder household survey, which counts the number of people with jobs, as opposed to the payroll survey that counts the number of jobs (including those of multiple job holders), seasonally-adjusted November employment soared by 696,000, after having fallen by 250,000 in October. The seasonally-adjusted November U.3 unemployment rate was reported at 4.66% +/- 0.23%, down from the 4.73% reported for October, while unadjusted U.3 rose to 4.5% in November from 4.4% in October. The broader adjusted November U.6 rate held at 8.4% for the fourth month, while unadjusted November U.6 was 8.1% against 7.9% in October. Net of the "discouraged workers" defined out of existence during the Clinton Administration, the actual unemployment rate continued to run around 12%.
The November employment gain was against a countervailing background of tumbling October help-wanted advertising, rising new claims for unemployment insurance, and sharp deterioration to recession level and near-recession level employment readings, respectively, for the manufacturing and non-manufacturing November purchasing managers surveys. These labor-market indicators remain consistent with what should be increasing distress evident in the official jobs and unemployment reporting.
November M3 Growth Roughly 15.8%. Based on data for 26 of the 30 days in November, the SGS-Ongoing M3 estimate should be close to 15.8% annual growth in the November monthly average, up from 15.3% in October. The November annual growth is the highest since July 1971 and is approaching the series' historic high of 16.4% reported for June 1971. The preliminary estimate will be finalized after this afternoon's report of large-time deposits and will be updated on the SGS Alternate Data Series tab (www.shadowstats.com) this weekend.
Week Ahead: 4% Official Inflation? With the FOMC action out of the way and the economy in an intensifying inflationary recession, most economic data in the week ahead could be on the soft side of expectations:
The October trade deficit (Wednesday, December 12th) is due for some catch-up reporting of oil prices and imports, or it will face rapidly increasing credibility issues. Accordingly, there is some risk on an unexpected deficit surge, despite recent heavy manipulation of the series.
November retail sales (Thursday, December 13th) will be helped by an early Thanksgiving, which will take some business from December's results. Nonetheless, any gain likely will be more than offset by related inflation, with sales down month-to-month on an inflation-adjusted basis.
If November industrial production (Friday, December 14th) shows a second, consecutive monthly contraction, which it should, recession speculation will intensify, as this indicator is one used by the NBER in calling recessions.
On the inflation front, the Fed will have pushed to dampen inflation reporting, if it eases on the 11th. Nonetheless expectations are for a 0.6% monthly increase in the November CPI-U (Friday December 14th). With the November 2006 up by just 0.05% on a seasonally-adjusted basis, any gain in November pretty much will add directly to October's annual CPI inflation of 3.54%. Such opens the potential for reported annual November CPI inflation breaking above 4%. Due to the November 2006 PPI gaining 1.6%, on a monthly basis, a similar surge in annual wholesale inflation for the November 2007 PPI (Thursday, December 13th) is problematic.
Further detail will follow in the December SGS newsletter.
The December SGS is targeted for late in the week of December 17th. An e-mail advice will be made of its and intervening Flash Update/Alert postings.