This is one of the few times that Wall Street could be overly pessimistic about the monthly employment report.
It’s not because the report will be so good — it won’t be.
But “experts” reading Labor Department tea leaves see signs of minuscule gains when the October jobs report is released on Friday.
The Street expects the job-creation number will be a measly 85,000 compared with the pathetically low 148,000 in September.
John Williams of Shadow Government Statistics — the best forecaster around — thinks growth could come in as low as 67,000. He says forecasters have been guided down by weaker trend models from the Bureau of Labor Statistics seasonal adjustments.
The models are terrible as forecasters and Wall Street’s guess is always too high.
So why do I think The Street could be underestimating growth?
For one thing, October is one of those months when the Labor Department is pretty optimistic about the number of jobs it thinks (but can’t prove) were created by small, newly formed companies.
Last October, the Labor Department added 118,000 of these phantom jobs to the monthly count and there’s no reason it should be less generous this year.
Then there is the effect of the government shutdown that happened in mid-October. Because government workers have been paid — or will eventually be paid — their positions are not being counted as lost in the survey that produces the job count.
So those “furloughed” workers will not detract from job growth in the so-called establishment (or company) survey, which results in the figure that gives us monthly job growth. If all 800,000 of those furloughed positions had been deducted, Friday’s number would come in at minus hundreds of thousands of jobs.
These furloughed workers will, however, be included in the unemployment rate, which is derived from a separate survey taken by calling houses. This could temporarily boost the jobless rate by a couple tenths of a percentage point.
That’s not to say the government shutdown won’t have any impact on the total number of jobs, as measured through the establishment survey. When the government shut down, people in the private sector were probably temporarily or even permanently let go from jobs connected to government contracts.
But will the effect be enough to reduce Friday’s number to growth of just 85,000, as Wall Street is expecting?
This is an unaccustomed position for me but I’m going to have to bet the over — meaning, I think the figure will come in over 85,000.
Keep one other thing in mind, though. No matter what, the figure will be the epitome of a mulligan: the forgiven shot that anyone who plays golf knows about.
All of this is moot, of course. The Fed will ignore the number when determining whether or not to begin to back off its quantitative easing policy. And economists will have a legitimate excuse to treat the October number will disdain.
Our concerns about the economy will get serious again on Dec. 6, when the November jobs figure comes out and we can again fret about the direction of our country.
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I’d like to continue the rant I started in my last column about more insider traders needing to go to jail.
Steve Cohen, the head of SAC Capital, probably isn’t thrilled that he had to turn over $1.8 billion to settle charges against his firm.
But he’d be downright crestfallen if he had to pay and go to jail.
There’s no deterrence if the fine — even at $1.8 billion — is less than the profits made from illegal trading.
US Attorney Preet Bharara likes to play with words, with his twist on “too big to fail” that no financial institution is “too big to jail.”
But that’s as likely as, say, Citibank going bust. We all know that companies can’t be incarcerated. So corporate executives probably have a nice laugh when they hear the “too big to jail” quote.
Bharara needs to say “no financial institution is too big to shut down. And no executive makes so much money, has so much political clout or is so charming that he can’t end up behind bars.”
Yeah, it’s a little long and not as catchy. But it gets the point across to anyone who thinks cheating is the way to either make themselves rich or make their company’s performance look better.
Happy hunting, Preet. But the next time you go after insider trading, bring along your handcuffs.
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If you have any involvement in the financial markets, you’ll want to keep your eyes on interest rates.
After a brief break, they are rising again despite the fact that the weak economy should keep them down.
Friday should be interesting. If the jobs report is weak — and it should be — and rates keep climbing, then there is probably something else going on that we don’t know about.