I kid you not. Today boasted the data release of ‘Non-farm Payrolls’ and the unemployment rate — two of the most intensely watched measures of U.S. economic health.
This month showed that 51,000 jobs were created in the month of September — about 80,000 FEWER than the market expected. However, August’s job creation numbers were revised upwards by about 60,000 jobs. So the 2-month total came out slightly weaker than expected.
As expected, the Dollar dropped on that negative economic information — but wait!
Along comes the 600 pound gorilla — or maybe I should say the 810,000 pound gorilla.
That’s right. Something called a ‘Benchmark revision‘ to prior job creations were upped by an astronomical 810,000 jobs.
In all my years in the business, I’ve never heard of such an enormous revision — almost clownish:O
Now comes the strange part…
…and no, I’m not implying there is any funny business going on ‘behind the scenes’ but, my friend, the chief economic strategist for a major international bank, remarked that the number was “ridiculous”.
Seems the Bureau of Labor and Statistics (BLS), the cruncher of this payrolls data, announced its ‘annual benchmarking’ — a process that allows them to modify a prior years worth of data to more accurately reflect how things unfolded over the course of that fiscal year.
This time, their ‘annual benchmarking’ added 810,000 jobs to Bush’s economy for the fiscal year April 2005 — March 2006. This means that the level of payrolls as of March this year was 810K higher than previously thought. (Note that this exercise does not affect any data released since March. Next year’s benchmarking will cover these.)
How big an outlier was this revision?
For comparison, the aggregate benchmark revisions dating back to 1996 added a whopping 1,555K jobs to the economy, 810K of which (52%) were added during April 2005-March 2006!
Looks great for Bush and the Republican just before the election, eh? I’m sure theyll use this retroactive influx to sell their domestic agenda — despite the fact that the administration’s job creation record is actually the worst of the last 40 years.
So what does this surprising revelation offer the U.S. economy?
The higher benchmark number means that there were more jobs. More jobs imply lower productivity growth than originally thought over that time period. That means the estimates of trend GDP growth should be revised LOWER, meaning the economic growth purported over that time period was LESS than sold to the public.
Some strategists think this development points to an unambiguously sharp slowing of the U.S. economy — leaving the Fed no choice but to EASE RATES.
That said, bonds are getting hit (i.e. sold) implying the market thinks interest rates are heading higher.
The employment report says, “BLS currently is researching possible sources for this larger-than-normal expected benchmark revision. On initial review, the difference between the CES sample-based estimates and the UI employment counts does not appear to be concentrated in any one industry or geographic region.”
The benchmark revision suggests that further upward revisions to non-farm payrolls since March 2006 are likely. This implies that any chance of a near-term rate cut by the Fed is significantly diminished. The US economy at full employment and unit labor costs are well above the Fed’s comfort zone. Thus, any Fed move over the next six months will most likely be a rate hike, not a rate cut. That will be a disaster for the US bond market, but will likely break the US Dollar out of recent ranges — higher!
Worse, if oil starts rocketing back up into the 70s, we should start considering the real possibility of STAGFLATION — but we are not there yet.
