THE ALWAYS IMPOSSIBLE TO PREDICT NFP FIGURE….
I usually don’t bother writing much about the non-farm payrolls data because it’s a notoriously impossible figure to predict. Nonetheless, we always get the chorus of analysts and pundits who predict what the figure will be and it’s always a market moving event. With the consensus at 205K I am beginning to wonder if recent data isn’t being overlooked. Specifically, both the ISM Services and Manufacturing showed weakening employment in February. Small businesses are warning about hiring (via Joe Weisenthal):
“Mostly people are very bullish ahead of this Friday’s jobs report, and estimates among some on the street are in the high 200K range.
While we wait for Friday eagerly, we continue to look for every scrap of data to feed our hunger to learn what’s happening in the labor market.
To that end, the latest announcement from the NFIB is not good.
The organization that represents small businesses says net new job creation among their members was rather poor in February.
There was actually a very big decline in the net number of new firms planning on adding workers.”
And then we’ve got the Philly Fed data, which I highlighted last month. Jack Ablin is one of the few analysts with a decent track record of NFP predictions and he focuses largely on the Philly Fed Employment data. As you can see in the following chart I put together, the correlation between Philly Fed Employment and NFP data is very high. The recent decline in the Philly Fed survey is indicative of a substantial miss in the NFP data:
Monthly payrolls are notoriously impossible to predict, but with the Citigroup Economic Surprise Index at elevated levels and the economy still relatively sluggish I have to wonder if the predictions of upside surprises haven’t started to get excessively optimistic….
Cullen Roche
Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.
Follow Me:
7 Comments
Certainly wouldn’t surprise me…lord knows I am rapidly approaching the expiration date at my current job. Bleak times.
I’m positioned short now with a very tight stop pretty much based on the technicals, and in expectation that this NFM falls short. It will be a market mover one way or the other.
@MM
What level of S&P would stop you out on your short?
If we came back from this bounce through the last high, and it held, I would give in. I’m not overly bearish, I just finally cashed out my longs on Monday as I had been ninety percent long since November. I only went short with about 15%. I was already slightly hedged via the VIX after it held support on Friday so I don’t want to go too far too fast.
I am also still holding two blue chip high yielding stocks that kept going up through August to October and I’m still counting on the recent divergence of the home builders to carry through. I havent completely sold my gold position…though I cut three quarters of it after the drop….I didn’t want to hold out until the whold position became a loss, but I think there is going to be quite a conflict for investors as to where to put their money if there is follow through on this down swing and so I expected a bit of a bounce….I still have a high yield Nat Gas stock (because I’m being stubborn and foolishly daring Nat Gas to keep going down). And finally, I have a small profit on a position (based on the outlier premium) shorting the 20 year. The technicals are still holding, and so am I until they fail.
Actual levels on my overall short? Well, referencing the SPX, I’ll cut my losses at a break and hold above the 1375 resistance. I’ll take partial profits around support at 1300 and I’ll be tightening stops on the remainder daily if we get down below about 1275-1280.
All in all, barring something catastrophic in the short term, I’m expecting things to keep going up for a while.
My biggest regret (in hindsight of course) in the last month was not cashing out my longs in oil. I made a large paper profit and have been holding since it started moving sideways on the possibility of an Iran conflict outlier, but I’ve seen that profit all but melt away. I wont have patience for this much longer, and I sure won’t be taking a loss while I wait for something that is already a long shot. If overall macro picture is looking busted it’s awefully tough to be trying for the outliers. On the other hand, since November it would have been tough to not make a little bit of money even if ‘the big one’ didn’t happen, so it was worth the risk.
@ MM
Just noticed your response and wanted to thank you.
I can understand your strategy and hope you have good luck and returns on your short.
I may try again after the NFP report on Friday if 1375 holds
Meh, if it doesn’t work I lose 1-2% on the upside and my risk points will keep my actual losses to .75 to 1% of my overall capital.
Having said that, thus far, I’m dead wrong. Like you though I am waiting on confirmation at 1375 before I cut my losses. There was a pretty firm failure in the last hour today that I was pretty happy to see. Vindicated for a few more days!
Times like this I wish I had the ability to learn more about options, but I just don’t have the time and I’m not willing to try with real money. I learned that lesson when I started investing.
Bad data should have a market solution …. does anyone know if there is good private real time economic data? Seems to be a good business … you just hire people (like car counters) to count people walking into car showrooms (or pay cash strapped states like California to get real time car registration data etc.).