Jobs Picture Reverts to the Mean

If you watch my interviews with David Hightower every week, you usually know what to expect from weekly and monthly jobs data, especially as he uses the weekly data to predict what to expect from the monthly Non-Farm Payrolls report. He consistently tells us when the consensus is likely wrong and when to expect a big surprise. This week, the commodity guru and advisor to multi-national corporations showed us a chart of Weekly Initial Jobless Claims going back to 2002.

This “wide-angle” view that Hightower gave us spoke volumes about the “V” recovery because the jobs data have had such a nice inverse correlation to the economy and equities. What also stood out to me was the possibility that this rapid rebound in employment was due to pause and even revert back to a middle ground for the worst recession in generations.

Sure enough, Thursday’s Weekly Claims came in at 480,000 vs. market expectations of only 455,000 while the Continuing number hung in around 4.6 million.

Then, this morning’s NFP and employment report gave us a fuller idea of the surprises Hightower was looking for, with January declining by 20,000 versus expectations of a 15,000 gain, a swing about 35,000 jobs to the downside, and December revised to -150,000 from -85,000, a swing of 65,000 further in the hole. His breakdown of the forces creating the potential for a negative snapback were as follows:

• Jobs Recovery Slows Down. Just as firms over-reacted in 2008 slashing workforces, the expectations for less cuts/more hiring may have gotten ahead of themselves on the rebound. Remember, even the NFP number is a survey number of the corporate landscape, just like the unemployment rate is a survey of 60,000 households. Hence, we aren’t dealing with exact numbers of people hired and fired as most people think.

• Obama’s Megaphone. Hightower notes how well the President gets the message out in advance of a good (or bad) jobs number. He’s on top of the situation, at least from a PR standpoint, and tries to appear at the helm in the deeply partisan political environment he finds himself in.

• V-Recovery Unicorn. The myth and legend of this economic resurgence will be marveled at for some time. Many fortunes were made on the dramatic upswing that equities “ran ahead” and priced in. Now, we have to wonder if all of the best earnings scenarios for 2010 are already baked into this risk asset cake. Hightower spoke of “market jitters” and on Monday, I called for a correction, based sufficiently on the S&P 500 chart if nothing else.

• Commodities as Canary? The other half of the risk/reflation trade, as seen in areas like oil, copper, and the dollar, had also been showing some signs of a near-term top, especially with China on the path to pro-actively prick any possible asset bubbles there. My talk with Hightower the week before gave us a strong thesis for selling copper and stocks like Freeport-McMoRan (FCX). 

Check out the full interview where we discuss these themes.

The Earliest Call for Job Creation

As another example of Hightower’s spot-on analysis of the trends in employment data, last November he was the first to predict the strong possibility of job losses turning the corner into job creation as early as December. He showed us the chart below of Continuing Claims on Nov. 16, and revisited the theme on Nov. 30 ahead of December’s NFP/unemployment report which did indeed stun the market with a loss of 11,000 versus expectations of -125,000 and October revised from -190,000 to -111,000.

The trend that Hightower saw of Weekly Claims slipping below 500,000, and Continuing Claims below 5 million, was realized quickly. And even though December’s NFP fell by 85,000 versus expectations for zero losses, the November number was revised from -11,000 to plus 4,000!

A Double Dip in Our Future?

With today’s disappointing two-steps-back, many are going to start to conjecture about job market weakness and if it predicts something more ominous for the economy. Certainly, the annualized GDP growth rate we got this month, won’t be as dramatic in Q2. But, the real story probably lies in a “muddle through” scenario, where unemployment hovers around 10% and claims are sticky at 450,000 Weekly and sub-5 million Continuing.

Credit for businesses is still the troublesome linchpin of economic expansion and job creation. And worries about sovereign debt aren’t helping right now.

John Mauldin, money manager and author of Bull’s Eye Investing, used this “muddle through” description for the post-tech bubble, post-9/11 economy. That recovery turned out to be more robust than he imagined and we now know fully why as we live out the consequences of the bubble in credit and housing that followed those calamities.

So that I don’t have to wonder about any of this too much, or try to crunch and interpret the data myself, I am going to keep reading and talking to the guy who has it nailed so far. David Hightower doesn’t just look at government statistics or commodity trends and charts. He’s talking to the big producers and consumers of the economy at all levels, globally. For a free trial of the Hightower Report or their other research, visit www.Futures-Research.com and sign up.

And keep tuning into to ONN every week for my video chats with David. I usually know what charts and analysis he’s going to bring on Monday because I get the Hightower Report on Friday. But many Mondays, he surprises me with a look at some commodity or data trend I didn’t see coming. It’s always worth my time to find out what he’s watching and why.