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Friday, February 05, 2016

Employment, Suggestive Only

First, the technical adjustment in January makes it difficult to accurately compare numbers. BLS does the best they can - if you read through the header, there are all sorts of tables explaining the adjustments. With that proviso:

1) The adjustment for the Establishment Survey now creates a nice declining curve for the last three months for private sector employment (280 > 262 > 151).  An obvious match to the initial claims, which have been slowly increasing since last October. Very pretty and all, but a total mismatch with the Household Survey.

2) The adjusted Dec/Jan MoM chanrge for the Household Survey is + 615,000 jobs, and 409,000 after the adjustment was removed. There is an obvious discrepancy of some 250,000 jobs between the two surveys. Further, the discrepancy is more than the expected error for the Household Survey.

3) Turning to the Birth/Death series, which is used only to compile the Establishment Survey numbers, the adjustment for January 2016 is highly negative at -233,000.  If one adds that back in, one gets a lot closer to the Household Survey numbers, which are used to figure the unemployment rate. 

Now, how you reconcile this is up to you, but January FUT seemed to indicate that employment was not too good in January. When in total doubt, I usually use FUT. 

Now, for some M_O_Mish (possibly wrong!) explanation. 

I think we still have a two-step economy. We all know about the problem with oil. The inflection change showed up beautifully in the 2015 NACO county survey. The stronger dollar hurts export business. Both of these affect larger companies more than smaller companies, although there is a high feed-through to smaller companies from the oil.

My theory is that small businesses are on net doing much better than big businesses, because I believe that aside from the oil issue, which is real-but-known, the primary hidden mechanism for this downturn is big businesses having gotten too frisky with debt as compared to possible income, and now they are not well-prepared to deal with a soft patch with declining profits, sticky revenues, and an impending interest rate increase. In short, they are tightening their belts in a coordinated manner. 

And, since FUT January returns are dominated by big firms due to filing rules, this theory would go a long way toward explaining the discrepancies as listed above. 

Further, there is some supported evidence in the NFIB preliminary jobs report (good hiring potential, hard to find qualified employees). 

That, however, is not unalloyed good news. To rephrase, the primary CAUSE of this recession is that large companies are stuck because of getting too happy with the borrowing, and small companies are stuck because they need to raise wages more than they can afford to raise them with current revenues.

The NATURAL cure for a situation like this is that prices fall (happening to some extent), big companies get real, and small companies profit by contracting/taking over work with their preferable, lower, cost structures. It is not clear to me that this can happen, and in part it may not happen because of ACA. 

There is also a huge structural regulatory cost to our economy which just keeps getting larger and larger. It weighs relatively more on small firms. 

Next (whenever I get to it), a slightly more detailed look at causation and current factors.  I would also like to refer to Learner2's comment on the last post, which I thought was very good.

Causation? Isn't it obvious? It's Boosh, forever Boosh! Hangovers and Cheney and all that. Beerrrnie!
Gordon, I was referring not to spin, but to actual factors.

I laughed, but your comment isn't really an exaggeration. I have read that on DU. After seven years, it's a bit old.

The best DU explanation so far, which I read late last year, was that Trump running for the presidency so frightened businesses that they are shutting down operations and leaving the country. That was the gist of it.

It should be an interesting election cycle.
Hello M_O_M

Long time-life is good. Hope you and the Chief are well.

No recession.

Low interest rates. Low energy costs. Low unemployment. Increasing household formation. Increasing house prices. Bank Lending.
Leverage dramatically reduced.

Life is good- learn to love the Bomb.


This is an interesting article on how Carolina QB Cam Newton will, because he lost the Super Bowl, be taxed at 198 percent of his game bonus by California.


I knew the various states had ways of taxing the visiting athletes for the games played in the state. I had no idea it was so bad. No wonder the basketball players all want to be traded to the Miami franchise. One gets a huge raise, with no negotiation needed.
Here is confirmation on your FUT analysis. Look how weak the Federal Withholding Tax receipts are in the graph in this post:


Good week for the Chinese to have a new year as they are going to have a tough time keeping their stock market up.

Ah, CF, nice to hear from you. The Chief is doing pretty well, as am I. I hope you and the better half are prospering!

We are in a recession, but so far it's a mild business-led recession very like the 2001 thing, which was hardly a blip on the radar until 9/11.

Further, it's mostly a two-step recession right now, with small businesses not contributing much. We never went into a recession before without household formation, employment and etc not being good.

If consumer involvement is limited, this should be mild and healthy. By early 2017 we would be poised for stronger growth. But will it be? That's why I am concerned about the timing of this.

Given the situation, I am really not in favor of importing a whole lot of Syrians, though.
Learner2 - it is definitely not fixing on the day to day. Withheld employment taxes have been slowly losing their YoY exuberance. They are still up YoY, but the lift is dropping out. This is more relevant than it might otherwise be, because:
The milder winter should have given us a YoY lift, and
Minimum wage increases in states, clearly evident in the January employment report, should have also given us a YoY lift.

The vagaries of FUT are such that the YTD is now not directly comparable at this point. The 940 returns are in and many states got out of their unemployment loan paybacks, which is shifted to businesses in a form of a lowered credit, thus sharply raising their 940 balances. But since many states escaped that, 940 balances were lowered.

The exception was CT, which could not get its s__t together, or was just salivating at the prospect of being able to raise taxes on businesses without having to vote for it. CT businesses got hit with 2.1% lowered FUTA tax credit. I'm sure they were just thrilled. But a lot more states got out of their 1.5% lowered tax credits, so now I have to compare the dailies.

However the dailies don't look good. Business taxes aren't good. Excise taxes are okay.
Hi MoM - Thank you for your input! How long until QE4, a cut in the FFR, and a cut in IOER? My guess is quite a bit of pain before then, with quite a few bankruptcies in the energy sector. Also, it would help to get a R in the Presidential office allowing for across the board pro growth fiscal policy which has been missing during this recovery.
Just to throw another log onto the fire, the business section of the Dallas Morning News today stated that McKesson (based in, wait for it, wait, ...SF, California) was looking at the DFW area for a new headquarters. Maybe that explains the "Bernie" yard sign across the street, haha.

Was looking at the Texas Municipal Retirement System (TMRS) and they officially lowered their expected rate of return to 6.75%. Downright bullish of them considering the 30 year US Treasury is less than 3%. Guess they are going to use leverage to accomplish that!

I watch California because it is so huge. They release their monthly financial stmt on the 10th each month. This month was very interesting. Personal income tax received $11.7B (1/2016) compared to $11.4B (1/2015) showed that there was growth in the YOY income. Contrast this to Sales & Use Tax receipts of $737mil (1/2016) compared to $783 mil (1/2015), which shows people are making more money but clearly spending less. To add context S & U Tax receipts $12.6Bil (7/2015-1/2016) versus $11.8Bil (7/2014-1/2015). Clear shift downward for at least one month.

If the market stay down, CA will hurt as their state budget is extremely sensitive to Capital Gains taxes (Google, etc IPO).

Hard to believe I started following you on Calculated Risk back in approx 2005 with Tanta. My how time flies!
Best regards,
which shows people are making more money but clearly spending less.

Unless you have other figures you aren't showing, there is no indication people are making more money. All I can gather from the figures you cite is tax receipts went up which may mean a tax increase rather than an employment or wage increase. S&U receipts being down suggests wages/employment are only steady, but that tax increases have poached sales.

(I'll add that gasoline is usually taxed on a per gallon basis rather than a per dollar basis so lower gas prices should have no effect on S&U.)
They had more "taxable income" in the state of CA than the prior year. Granted most of it may have been in capital gains, but overall in CA taxable income went up. The point I was trying to make in the S&U taxes was this: S&U taxes for January were down by 5.8% YOY, while the YTD receipts (for 7 months as CA fiscal year begins 7/1/15) are still UP by 6.7%. To me that shows a rather dramatic slowdown in spending. I hope this adds clarity.
Your e-mail has changed, and I need some info that you have, and I do not. If you have the time, I'd appreciate hearing from you. I need a link to your pieces on, I believe, curcumin, which I can not find, after a considerable amount of time in search.

Since I do not expect to hear from you before this Sunday, I'll wish y'all a happy Easter now.
Entirely unrelated to this piece, abut entirely right for the day, Christ is Risen. Happy Easter!
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