Tuesday, October 22, 2013

Thoughts on the Employment Report

Today's employment report was exceptionally weak.

It's worse than the headline numbers suggest. That drop in the unemployment rate from 7.3% to 7.2% isn't all it is advertised to be. Some might even call it mostly rounding error. The following chart uses the data that's used to calculate the rate.

Click to enlarge.

Note that the unemployment rate actually fell less than 1/2 of 0.1%, give or take statistical error (which is no doubt quite high). The rate was rounded up in August and rounded down in September.

Three days ago I posted the following chart.

October 19, 2013
Unemployment Rate: What's the Worst That Could Happen?

Click to enlarge.

As seen in the next chart using today's new data, we bounced solidly off the bottom of the channel.

Click to enlarge.

We are tracking the worst-case scenario with alarming precision. If we continue to do so, then the unemployment rate will soon begin to rise again (confirming that the Fed has not permanently put a stop to the business cycle, much to the surprise and dismay of those embracing risk assets at any price).

It's not all bad news though. Sue Herera of CNBC told us today that 80% of 20-year-olds don't trust the stock market. That means 20% still do! Amazing! Once they've paid off all that monstrous student debt, find employment someday (hopefully in a field that requires a college degree), paid for health care, and possibly helped support their parents in retirement, they can invest whatever is left into it. Just think of all that remaining cash flow!

This assumes of course that we don't have another recession that pops all that optimism.

Don't let it concern you that the unemployment rate of those aged 25 and higher with college degrees rose from 3.5% to 3.7% over the last month. That's probably just sampling error and not the start of a new trend. If nothing else, the unemployment rate of those aged 25 and higher without a high school diploma fell from 11.3% to 10.3%. Whew! We needed that in order to get that unemployment rate headline number to fall. It would have been anarchy without it!

In summary, it was a fantastic employment report for our short-term financial system, and isn't that all that really matters? It means ZIRP will continue to be with us longer than most expect, which is kind of funny when you think about it. The end of ZIRP is always two years away!

This post does include some sarcasm. Just look for anything even remotely optimistic to spot it.

Source Data:
St. Louis Fed: Custom Chart

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