Zeev's Turnips Patch-No Politics (ZEEV)

[federal reserves]

IF YOU'RE BETTING ON JOBS FIGURES, TAKE THE 'OVER'

By JOHN CRUDELE

May 31, 2005 -- TAKE the "over" bet on Friday's jobs figures.
In its finite wisdom Wall Street is predicting modest growth of just 180,000 jobs when the latest monthly figures are released late this week.

But this is one of those months when the Labor Department is very generous with its assumptions, so the experts' consensus could be wrong.

In every single month the government either adds jobs for new companies it believes quietly began operating but couldn't be surveyed, or Washington subtracts jobs for companies it thinks went bust.

This exercise is called the Net Birth/Death Adjustment to the Current Employment Statistics and can be found at http://www.bls.gov/web/cesbd.html.

These are just guesstimates. The Labor Department doesn't really know if the addition or subtraction of these jobs is realistic — but it makes the guesses anyway.

And not surprisingly, the department mostly adds jobs — usually in 10 of the 12 months.

Even less surprising is the fact that since last spring, the overall employment number that you read in the Saturday headlines has been greatly affected by these government guesses for newly born or recently deceased companies.

The one glaring exception: The original number of new jobs reported for March (later made stronger in a revision) was surprisingly low even though the government added a whopping 179,000 of these imaginary jobs to the count that month.

(That was probably because the real economy — without the guesses — was indeed weak.)

So what does Friday's guesstimate look like?

In May 2004, the Labor Department estimated that 204,000 jobs were created by these invisible new companies. That was the second biggest guess of that year, lower only than April's 225,000 jobs.

In 2005, the April guess was increased to 257,000 jobs — presumably because someone at the Labor Department was inhaling nitrous oxide.

That guess helped create an outsized total headline gain of 274,000 jobs — not even close to the moderate increase Wall Street was expecting.

So it's safe to assume that the Labor Department thinks the economy is doing better this year. And it's likely that the guesstimate for new company jobs this May will be higher as well.

There is, of course, one thing that could go wrong.

Like happened to the March number, the real economy could actually be losing jobs. And layoffs could swamp the government's optimistic assumptions.

But that's unlikely.

So take the "over," which in gambling parlance means you should bet that the actual figure would come in over the expected 180,000.

Alan Greenspan has already mentioned the economy's conundrum: one minute it looks great, the next awful.

And because of these mixed messages the Federal Reserve has been unable to get interest rates up, which in turn has been creating the endless discourse about the effect cheap mortgages are having on the real-estate bubble.

If Friday's number is strong enough, interest rates should start heading up again — which means bonds will go down in value.

And the stock market?

For a number of reasons stocks don't like higher borrowing costs. But any bad reaction to a good jobs report — good is bad, after all, in Wonderland — should be delayed until the market gets out of the June sweet spot.

Remember, professional traders will try to keep stocks moving up at least until they can report their first-half results to clients. So far, they've had a lousy half and theywould like that to change.

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The coming play.

#1 (BEAR)
>> A good jobs report, if it also shows outsized wage gains
>> will crumble bonds and stocks, particulary
>> if crude inventory stocks drop and crude spikes.

#2 (BULL)
>> On the other hand, if jobs increase with limited wage
>> gains, and if crude oil inventory rises/prices fall,
>> stocks will explode.

I notice commericals are long crude. AND its breaking out of a downtrend line marked by the recent tops. Very bullish. If it
gaps up tommorrow and runs, stocks are in big trouble.

Ignore the charts, and watch the unreported news! Establish a long term fundamental view and don't get sucked in.