The gigantic payroll firm Automatic Data Processing (ADP) reported jobs data this morning. Namely, that there were 20,000 private sector jobs lost in February. Economists had been expecting a loss of 50,000.
Analysis: The financial markets are likely to hail this as a win, since expected losses were so much higher. However, the economy is still losing jobs, despite the fact that GDP is “up.” I put “up” in quotes, because the increases in GDP that we have seen are not sustainable in my opinion.
I also want to point out that the fact that economists continue to be off by many orders of magnitude in their economic estimates of just about every statistic. This is a sign that the economy remains in a limbo state. Because forecasting is so statistics driven, it relies upon trends in order to work well. So if the economy is either up or down then forecasts can be accurate. When statistics are up and down simultaneously then the complex computer models that economists build break down.
Unfortunately, big institutional investors base their buy and sell programs (also computer driven) based on these complex computer models. So you get these bizarre trading days that seem out of step with your average citizen’s experience of what is really going on out in the real world. From where I sit the economy still looks shaky. That state will be a persistent state until unemployment starts to improve and dramatically. That damned unemployment figure has to get below 10% first, and then below 9%. When unemployment is 8%-ish then consumer confidence will begin to recover. Until that time, I think we’re going to continue to see wobbling economic statistics.
The question remains: who will blink first, consumers or businesses. The vicious circle that we are in is: no new jobs = consumer fear = no consumer spending = bad business profits = no new jobs. Will consumers start spending first, or will businesses begin hiring first? That is the existential question. From where I sit, I think businesses are going to have to start hiring. This is because, coupled with no jobs is the fact that consumer credit is also crushed. One silver lining to this is that businesses are supposed to spend money when they have new, innovative business ideas. That is supposed to lead to new projects and a demand for new employees. This is certain to occur because businesses are in the business of making profits. However, the problem with this is that business investment (the I part of GDP’s C + I + G + X) is much smaller than the consumer spending (C) part of GDP. That means the recovery is going to be slow.
Importance grade: 4; the ADP figure does not change the information landscape at all. Nor does it really improve our understanding of the consensus.
Jason
PS – thanks for the recent feedback everyone, I appreciate it.
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