TOMORROW’S labor report could be a big problem for Wall Street.
I’m working strictly on a theory here, so cut me some slack if I turn out to be wrong. But this is so big (I’m using my best infomercial voice here) that I thought it was my obligation to share.
Back in January the Labor Department started to seasonally adjust its employment figures on a monthly basis.
Why monthly? Beats me, since the word “seasonal” implies – what? – something that occurs every three months.
Anyway, I did a column on this change back then, and nobody seemed to care. Well, they might start caring tomorrow.
Here’s why.
Employment was terrible during the April 2003 “season,” with the U.S. losing 48,000 jobs. You can blame that one on the already bad economy and the brand-new war in Iraq.
And in April 2002 there was a very modest gain of 43,000 jobs. Fears of terrorism as well as the slow economy kept growth down. The year before that – in April 2001 – there was a huge loss, of 223,000 jobs.
I know what you are thinking: that means job growth this April was also bad. But my theory is exactly the opposite.
First I have to start out by saying that I continue to believe the economy is really only growing moderately – less than 4 percent – despite heroic and historic efforts by the Federal Reserve.
And no matter what the Labor Department numbers may say, I think job growth (especially quality jobs) is much smaller than it should be in an economy that is growing moderately.
I also think that the quality of the Labor Department’s statistics sucks and that one month’s data is only useful for placing bets on how the various financial markets will react, not for determining how the economy is actually doing.
But here’s what could happen statistically because of past bad Aprils.
The government’s computers generally look back three years to see how statistics should be adjusted for the “seasons.”
This time, the Labor Department’s machines will sneak a peak at the last three Aprils, and they won’t be expecting much growth for this year.
If last month – the most recent April – happens to have produced a modest number of new jobs (which is likely, based on other numbers we are seeing) the computers could swish the figures around in their seasonal adjustment computations and make them look larger.
Got that? The computers expect very little, get a more decent number and then make that number look better than it really was because the expectations were so low.
Why would big job growth – statistical aberration or not – be a problem?
Because right now, the financial markets are fixated on rising interest rates. And if a big number comes out tomorrow, then the gurus and guru-esses will start worrying about bigger and meaner rate increases coming sooner than expected.
But a warning: A big number tomorrow will have the numbskulls on Wall Street proclaiming that the jobs recession is over. That isn’t at all what it will mean, given the fact that other adjustments I’ve explained before are also made to boost the tally.
For the record, the so-called pros are looking for job growth of between 160,000 and 170,000 and an unchanged unemployment rate at 5.7 percent.
In March, there was seasonally adjusted job growth of 308,000, but that appears to have been a fluke caused by the ending of a big strike. Normal monthly growth if the economy were truly growing at around 4 percent would be 250,000 a month.
One last thing: If job growth happens to be disappointing, then the Fed is really boxed in.
Since seasonal and other adjustments are undoubtedly going to help the April jobs figure, then weak growth will make a rate hike very hard to justify.
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I’m told by a very good source that Alan Greenspan hasn’t officially heard yet that he is being re-appointed when his term runs out in June. And he’s worried.
Maybe with all that’s going on it just slipped the White House’s mind. Or perhaps this is just an insurance policy against Greenspan getting too feisty with interest rates.