There are a lot of ways that the pundits are going to try to skin the cat on this morning’s US employment report for March – but I have yet to see anyone on the tape with the call that I am about to make. Like US Housing, US Employment is now turning to the positive.
Positive? Yes – very much so. On a nominal basis, this morning’s report was obviously better from a claims perspective than both January and February, but the more important point is the sequential deceleration in the acceleration of the monthly US unemployment rate.
Everything that matters to my macro model occurs on the margin. This month’s sequential acceleration in US unemployment was only +.40% (from 8.1% FEB to 8.5% MAR). That’s a significant deceleration of the acceleration, and one that should start to TREND in Q2 – Why? Obama has 4 plus million jobs to bring into the base, and that ball is finally in motion.
For the math on this (and for Transparency/Accountability purposes), below is the call I made on March 6th, 2009 on employment titled “The Great Recession: Why I'm Not Depressed”:
Why I’m Not Depressed: It’s all about the delta. The revisionists are straight-lining the record setting acceleration in unemployment into becoming a repeatable rate of growth – mathematically speaking at least, that’s silly. Whether you want to look at this relative to the mid 1970’s when year-over-year trough to peak unemployment last ramped this quickly (up 300-400 basis points year over year), or in terms of percentage accelerations across different durations, my conclusions are the same – the rate of growth in the US unemployment rate is setting up to SLOW… right as the manic media worries people about it most.
This Is How a Depressionista Can Get To His/Her Numbers: the February 2008 to February 2009 acceleration in the unemployment rate was 330 basis points (from 4.8% to 8.1%, see charts below) – that’s a 69% acceleration of the nominal level of unemployment in this country. If we were to straight line that steep curve (chart) and project the same rate of growth in unemployment to February 2010, you’re looking at a 13.7% US unemployment rate. That would err on the side of a Great Depression type number. Using a shorter duration model, maintaining the current pace of growth in monthly unemployment gets you a 8.6% unemployment rate by the end of March – that too would be depressing, but I don’t think we see that number – if we don’t, the growth rate of unemployment will have SLOWED sequentially.
Back to today, April 3rd, 2009 and updated for this March report, the steepness in the chart below incorporates the peaking slope of this curve.
Was this steep? You bet your Madoff it was – but at +340 basis points year over year, the expansion of the US unemployment rate is not as bad as we saw in the 1973-75 recession, and it also coincides within earshot of both US stock market bottom and a bottoming in the y/y price declines in US housing.
The February employment report marked the peak of the acceleration in US unemployment. March just gave us one more critical economic data point that supports the recent +23% squeeze in the US stock market. While the Bears of 2008 are still writing books, I feel that I am one of the few bears who has made the bullish turn here with hard cold mathematical facts behind my reasoning.
Stock prices remain leading indicators. The fundamentals of the US economy have turned positive, on the margin, and materially so. Trailing economic data just reminds most economists why they are revisionist historians.
Keith R. McCullough
CEO & Chief Investment Officer