Conclusion: When analyzed with rigor, as well as in the context of presidential cycles, this employment report doesn’t bode well for the incumbent’s odds of winning reelection. Additionally, we continue to view the general election debate as supportive of USD strength from a rhetorical perspective.
As it relates to our intermediate-term outlook for US growth, there isn’t much analysis we can add to this morning’s Jobs Report beyond what has been signaled via the red on your screens today. In short, we continue to anticipate slowing economic growth domestically over the intermediate term.
It’s an election year, so we’d be lying if we said that we didn’t think the various government data collection agencies were incentivized to make the headline numbers appear shiner than they perhaps otherwise would. That said, however, we’re not in the business of making bold claims; rather, we prefer to apply analytical rigor to our hypotheses and draw educated conclusions from there.
Looking at the MoM payroll gains, the headline Non-Farm Payrolls number came in at +115k MoM on a seasonally-adjusted basis. This, does, however account for increasingly scrutinized seasonal adjustment factors, as well as the infamous NSA Birth/Death Adjustment, which generated +206k “jobs” – the highest number since MAY ’11 (interestingly, this sets MAY ’12 up for a potential acceleration, given that the headline APR # is likely to be revised down).
In order to net out these two effects, we subtracted the NSA B/D Adjustment from the NSA MoM NFP number and then took the YoY delta from that. This process resulted in a YoY decline of -317k jobs in APR – the slowest month since MAY ’11 and third-consecutive month of sequential slowing. Interestingly, employment gains on this metric peaked in JAN – right alongside the peak in our bullish Strong Dollar = Strong America thesis.
Looking at the Unemployment Rate SA, the headline number came in at 8.1%. By our math, which accounts for dramatic shifts in the size of the Labor Force by using a 10yr average Labor Force Participation Rate (which just ticked down to a 30yr low of 63.6%), the APR Unemployment Rate came in at 11.3%. At -322bps, this is the widest delta between our number and the government’s headline number in nearly 30yrs.
While an 8.1% headline Unemployment Rate is great ammo for the incumbent president to hit the campaign trail with this MAY, we hardly think the average American voter is stupid enough to believe this number at face value. Rather, we think masking the dismal state of the US labor market might actually upset those among us who are either educated enough to see through any “cosmetic enhancements” or unfortunate enough to bear the brunt of what is being enhanced. Still, it always helps to back such claims up with numbers, so we present the following six charts as evidence of what we feel the real state of the US labor market is – Quantifying the Zeitgeist, so to speak.
Each chart below features two recent Strong Dollar administrations and two Weak Dollar administrations – one from each party in both samples. The labels highlight where each figure was in OCT ahead of the general election (latest figure for Obama) and at the end of each president’s second term.
On a headline basis, Obama is trending quite nicely on the Unemployment Rate scorecard:
On an adjusted basis, however, Obama continues to trend sideways as the underlying state of the US labor market remains stuck in the mud:
Looking at unemployment through another lens (unemployed persons/working-age population), Obama continues to trend sideways here as well:
One plot that isn’t moving sideways is the percentage of working-age Americans who have left the Labor Force – now at new highs for the Obama presidency:
Turning to the US Dollar, the market price of America’s currency remains the #1 factor in our dynamic, 27-factor Global Macro model as it relates to predicting the slope of both growth and inflation expectations on an intermediate-term TREND basis. It’s no secret we favor Strong Dollar policies, given the historical correlation between expectations of USD strength backed by sound fiscal and monetary policy and the state of the US labor market. On this metric, Obama remains well shy of both Bush and Clinton heading into the NOV general election.
Given the Weak Dollar policy perpetuated by the Obama administration and his appointed central planners, it’s no surprise to see that the cumulative number of net job gains since the start of his presidency is a mere +152k. This trails Reagan (+16M), Clinton (+22.5M) and even Bush (+1M) – Obama’s Weak Dollar presidential counterpart.
All told, we continue to view the general election debate as supportive of USD strength from a rhetorical perspective. Using the grandest of all stages to expose the last two administrations’ critical failures in fiscal and monetary policy – specifically as it relates to the US labor market – is a strategy we expect the Republican opposition candidate (i.e. Mitt Romney) to develop and pursue over time. If implemented, this strategy would likely force both Obama (limited scope to make fiscally expansionary campaign promises) and Bernanke (gas prices?) into an increasingly smaller box over the intermediate term.
Have a great weekend with your respective families,