The Recession Started in June at the Latest and is Deepening: Non-farm Payrolls

The most important chart is the 12 month moving average of the changes in US non-farm payrolls directly below.

It should have been apparent to any economist, as it was to us, that the US was falling into recession at the end of 2007. The actual start of the recession is a formality, but no dating for the start past June 2008 seems justifiable, especially when all the other coincident non-jobs indicators are consulted.

The primary argument for a later dating to September 2008 is based on 'real GDP' number which in our view is distorted by a significantly understated rate of inflation. The traditional coincident indicators do not agree with that dating as well.



The headline or seasonally adjusted payroll number turning negative does not necessarily imply a recession in and of itself. It could be a response to a transitory exogenous shock. However, when one looks at the longer term trend as we show in the chart above, and the many other coincident indication as we have been pointing out this year, the implications of an endogenous recession is obvious.



Much is made of the Birth-Death Model, which the BLS uses to account for the jobs created by small business that are not in its survey. As you can see, every year the pattern repeats with some regularity and revision. The numbers are added to the payroll number from the surveys, to the actual number, which is then seasonally adjusted to create the 'headline number.'



We hope it is obvious that the seasonal adjustment factor is large, and often far more significant than the birth death model. This is why they choose to 'adjust' the birth death model lower during periods of extreme seasonal adjustment. It does seem to be statistically useless at best, and at best a tool for very short term data manipulation at the worst. It can have an effect in months where seasonality is slight.



It should be noted that this are the numbers that the BLS shows in its database today. They have been revised, and sometimes significantly so, from their original introduction to the public in the Wall Street headlines.

The economic luddite will ask, "What good does this do to me now? Of course I know that the US is in recession!"

The answer of course is that this is the same conclusion we presented as early as February, when it was more easily ignored.

The better question now is, how deep will the recession go, and when will the recession end? Questions with answers not so obvious as of yet without some informed insight. Common historic averages are just that: common, average and old.

The Gold Bull in Context

One of the most difficult things to determine is a trend change, from a bull market to a bear market, and vice versa. The market needs a wall of worry to climb, and a slope of hope to decline.

Historical data shows that the prevailing climate in corrections in a bull market reach conditions that are bleak and worrisome, with the majority of investors bearish and pessimistic before the next upleg is taken.

This is what makes it so difficult to separate a trend change from a correction; sentiment is often a misleading indicator, and people will self-select soft indicators to suit their bias.

But sometimes a trend DOES change. So how can we tell the difference?

This is where technical analysis becomes an indispensable companion to the fundamental perspective. While the trend is intact it remains in control of the market, until it is broken.

Credit Card Bond Sales Zero As the Credit Markets and Consumption Engines Stalls

Approaching our economic problems through crony capitalist bailouts of a few large banks (speculative investment banks by any other name) without reform is a policy error of the first order. Attempting to maintain the same unworkable status quo while doing nothing for the wage earners and the bulk of consumers is the curse of ideology and a financial sickness unto death.

Bloomberg
Credit Card Bond Sales at Zero, First Time Since 1993
By Sarah Mulholland

Nov. 5 -- Credit card companies were shut out of the market for bonds backed by customer payments in October for the first time in more than 15 years, as investors shunned the debt amid the global credit freeze.

A weakening job market and a looming recession are making it harder for consumers to make monthly payments, eroding confidence among investors about the safety of credit-card-backed bonds. It's the first month since April 1993 that there have been no sales, according to Wachovia Corp. data. Issuers sold $17.1 billion of the debt in October 2007, the data show.

``Nobody is eager to put money to work given the uncertainty in the market,'' said James Grady, a managing director at Deutsche Bank AG's asset management unit. ``When you think it can't get worse, it continues to get worse. There is not a demand'' for these bonds.

Top-rated credit card-backed securities maturing in three years traded at a gap, or spread, of 475 basis points over the London interbank offered rate, or Libor, during the week ended Oct. 30, JPMorgan Chase & Co. data show, 25 basis points higher than the previous week. The debt was trading at 50 basis points more than Libor in January.

The higher cost to sell the bonds makes it more expensive for banks and credit card companies to fund loans to customers. New York-based American Express Co. paid 160 basis points more than Libor at a Sept. 11 sale of the securities compared with 30 basis points over the benchmark at a similar sale in October 2007, Bloomberg data show.

Non-Farm Payrolls Report Tomorrow Could Move the Markets

We were starting to turn the crank on our projections for tomorrow's Non-Farm Payrolls report when we spotted this update.

The 'imaginary jobs' component will be in play, but in particular it is the 'seasonal adjustment' factor that gives the bureaucrats at the BLS an enormous ability to massage the headline numbers from the actuals.

We suspect the market will strike a level today and then gyrate around it to burn out the daytraders while the pros wait to see how the Jobs number gets spun tomorrow.

We see 926 as support on the SP futures with 918 below that. It would be a breakdown below 910 that would cause us to change our current hedged positions weighting. On the upside there is strong resistance at 954 and 978 with a few stumbling blocks around 960-968.

This is a thin market with a predilection to being pushed around by the Wall Street wiseguys. To use a 'poker analogy' they like to see the funds and specs take positional wagers with leverage, and then use their superior bankrolls and advantaged table insight to 'raise them' out of their bets and pocket the difference. This is one of the issues that must be addressed if the house banks are going to be sitting with the other players at the table, with the backing of the Treasury and slack regulation.

JOHN WILLIAMS’ SHADOW GOVERNMENT STATISTICS
FLASH UPDATE
November 6, 2008

October Employment Conditions Should Show Marked Deterioration

Jobs and Unemployment Due for Big Hits. With both the October manufacturing and nonmanufacturing purchasing managers surveys showing their employment measures falling deep into recession territory, with September help-wanted advertising holding at its historic low and online advertising still tumbling year-to-year, and with a new claims for unemployment insurance continuing to rise sharply year-to-year, October payrolls should have dropped by over 200,000, along with a continued sharp rise in the unemployment rate.

The October report is due for release tomorrow morning (November 7th). Consensus expectations are running at roughly a 200,000 payroll loss and a 0.2% increase in the unemployment rate to 6.3%, per briefing.com. They are not unreasonable, but still appear to be somewhat shy of reality. Election pressures are gone, but financial market pressures for rigged data remain. With the markets still far from stable conditions, a slightly better than expected payroll number might be a fair bet.