Get ready for Wall Street’s schizophrenic period.
Later this week the government should announce good jobs growth for the month of December. But that will be followed four weeks later by a report that will likely show very bad job growth in January.
As far as Wall Street is concerned this Friday’s good job growth will be a bad thing. But the bad job growth in January (to be announced on Feb. 7) will be considered a good thing.
Got all that?
Good is bad and bad is good — unless, of course, someone very high up at the Federal Reserve suggests that good is actually good and bad is actually bad.
Let me give you some numbers that will make this all as clear as a chocolate diamond.
Wall Street expects the Labor Department to report Friday that 195,000 jobs were created in December. That’s the financial community’s default guess — the consensus is always around that amount.
It also expects the unemployment rate to remain at 7 percent. But that figure is so ridiculously flawed that I won’t waste any ink or paper discussing it.
If the 195,000 job prediction happens to come true, it would represent a slowdown from the growth experienced in November, when 203,000 new jobs were supposedly created in the US. That growth was much better than anyone expected.
I say “supposedly” because I’m a natural-born skeptic and because, you might remember, the government was closed for much of the month of October. Perhaps, I’m thinking, Labor didn’t get the numbers right in November because it was still feeling the effects of the previous month’s shutdown and the government workers’ return to work.
Or maybe stores starting hiring their Christmas help earlier than normal. This could also have added to the November employment numbers.
And then there’s also the matter, of course, of the investigation into the Census Bureau, which pulls together the numbers for Labor.
Census has already been caught in two instances of fabrications. So maybe someone was playing with the November numbers as well.
Yet while Friday’s number will be purer, it will also be dangerous for the markets. Here’s why.
Job reports for the past two Decembers have been exceptionally strong and deceptive. There were 230,000 new jobs reported in December 2011, followed by 219,000 jobs created in December 2012. You’d have to go back to December 2010 to find a weak job figure for that month.
I know what you are thinking: so what, stores hire lots of workers in December for the holiday season. There should be growth.
But Labor’s figure are supposed to take these seasonal aberrations into account and smooth out blips like Christmas hiring.
My point: because the two previous Decembers had stronger-than-expected growth, this Friday’s number could also come in healthy.
Why is that bad? Because the Fed has already started to cut back on its Quantitative Easing (QE) program, the narcotic that has been keeping Wall Street high. A strong number Friday will probably convince Wall Street that the complete end of QE will come faster than its wants.
That kind of thinking is likely to change when the January report comes out on Feb. 7. I know that’s a whole month away and Wall Street’s attention span is a nanosecond, but I’m going to give you my “long term” view anyway.
January is typically a horrible month for job growth. I know, you also think that’s pretty obvious because of the cold weather and the fact that stores lay off holiday workers. But, remember, Labor is supposed to even out these factors when its seasonal adjustments are working properly.
The real problem with January’s number is that Labor’s guesstimate for jobs created by newly formed companies goes decidedly negative for that month. This is called the Birth/Death Model.
So with Labor assuming that hundreds of thousands of positions are being lost at small companies each January, it’s virtually impossible for job growth in January to be impressive.
Here are some examples. For January 2013, only 148,000 jobs were created. In January 2011, just 69,000 new jobs appeared. And in January 2010, there was a loss of 13,000 jobs.
Something very strange did happen in January 2012 — an amazing 311,000 jobs were reported that month. But that just proves miracles do happen!
If the January figures reported on Feb. 7 do turn out disappointing, Wall Street will be thrilled. Remember, bad is good because the Fed will be more reluctant to take away Wall Street’s drug of choice — QE3.
All of this is happening at a time when several Fed officials are beginning to say their mea culpas over the effects of QE. Dallas Fed chief Richard Fisher and Philadelphia Fed President Charles Plosser over the weekend both seemed to purge their guilty consciences about the stock market bubble that QE is creating.
And William Dudley, the president of the New York Fed, talked about the mysteries associated with QE. (In other words, Dudley doesn’t really know how this’ll all turn out.)
With nervous chatter like that coming out of the Fed, Wall Street would like its economic porridge neither too hot nor too cold. Friday’s job figure could be too hot for Wall Street to swallow.