Jobs for the boys (or not)

So the US cratered on Friday on oil's record rise. Or maybe not. The US cratered on Friday on a US$ collapse after Trichet's Euro-Hawk comments (on... er... Thursday.) Or maybe not. The US cratered on Friday on confirmation of weak US growth given high and rising unemployment rates, and hence limited room to raise rates after all, despite the opposing view from the ECB and hence a weak Dollar leading to a boom in (further) inflationary-spiral stoking energy and commodity prices, despite climbing unemployment... ie stagflation. Eek! Maybe.

• Unemployment: 5.5% vs consensus 5.1%, up from 5.0% in the previous month
• Change in May non-farm payrolls: -49k vs consensus -60k, up from -28k (revised from -20k)
• Change in May manufacturing payrolls: -26k vs consensus -40k, up from -49k (revised from -46k)

Or maybe not!!

Now we have JP Morgan's strategists out with a FLASH! comment that the markets have got it all wrong... Here's their argument, in short:

• The Dow Averages ALWAYS 30% gain in the next 12-months anytime UE rate rises more than 50bp
• Anomaly in the data? A 50bp jump in Unemployment is usually a result of 150k jobs lost…A 50bp rise in UE rate usually results in 150k jobs lost, not 49k. This is shown Our Economics team views the 50bp surge in the UE rate as driven by a rise in teen-age labor force participation (i.e., summer seasonal) and not really due to a decrease in jobs.
  
• While US Economic data is the most reliable globally, we occasionally see statistical aberrations.
  
• The bottom line? The Markets are over-reacting. The big picture, in our view, is that jobs are holding in. The fiscal stimulus is going to boost June data. Oil remains the big overhang, but the US household and US Corporates are reducing fuel consumption. We are buyers of stocks on this sell-off.

OK - sounds reasonable enough on the surface, but aren't there always a bunch of teenagers out there looking for a job this time of year... or have I missed a change in the US academic calendar? Statistical anomaly - sure, it might be... or it might not... a bit hard to make an investment decision on that, though. And as for the payroll numbers coming in less bad than expected , leaving out how a negative figure is still a negative figure, and focusing on expectations:

• Change in May non-farm payrolls was 11k better than expected
• But April was revised 8k worse too
• So net 3k better?
• Big %$#-ing deal.

Knowing how jittery the markets are, it's likely that the market selloff was, indeed, a bit of an overreaction last Friday. However, net net, I remain cautious.


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I suspect the original reason for JP coming up with this note is precisely because the markets tanked... everybody gets read when they come up with a note explaining why the markets were wrong in gapping down/ up on volume... Everybody wants to be The Smart Money, after all, not just part of the dumb herd... everybody wants that (all at the same time!)