Friday, May 2, 2008

Why the Markets Lost Friday's Gains

The Commerce Department treated Wall Street to a rare glimpse into the arcane workings of politics and statistics. The Bush administration is hell-bent on preventing a recession and keeping the economic outlook somewhat rosy until November. To that end, it's a near certainty that today's release of April Non-Farm Payroll figures was at worst, manipulated, and at best, simply wrong.

Somehow, US employment was actually shown to be relatively stronger in April than in the previous three months in which more than 240,000 net job losses appeared. The headline number was a loss of only 20,000 jobs in April, but a peek inside the release uncovers some very troubling and difficult-to-rectify numbers.

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First, the report shows that between March and April, the civilian labor force grew by 173,000 and that the number of employed people grew by 362,000. These figures actually produced a drop in unemployment of 0.2%, or 189,000 people.

The report broke out some key areas of gains and losses. There were losses of 61,000 construction jobs, 46,000 manufacturing jobs and 27,000 retail jobs. Gains in health care (37,000), professional and technical services (27,000), and food service (18,000). Taking the gains against the losses (+82,000, -128,000) still leaves us with a net loss of not 20,000 jobs but 46,000.

Noting that small discrepancy, the report delivers two highly dubious statements:
"In April, the number of persons working part time for economic reasons increased by 306,000 to 5.2 million. This level was 849,000 higher than in April 2007. These individuals indicated that they were working part time because their hours had been cut back or because they were unable to find a full-time job. (See table A-5.)

Persons Not in the Labor Force (Household Survey Data)

About 1.4 million persons (not seasonally adjusted) were marginally attached to the labor force in April. These individuals wanted and were available for work and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey. Among the marginally attached, there were 412,000 discouraged workers in April, about the same as a year earlier. Discouraged workers were not currently looking for work specifically because they believed no jobs were available for them. The other 1.0 million persons classified as marginally attached to the labor force in April cited reasons such as school attendance or family responsibilities."

Well, 306,000 new part-time workers begins to cloud the picture and is hardly believable. And of course, we won't count 1.4 million people "marginally attached" to the labor force in April.

Of these two statements, the addition of 306,000 part-time workers in one month is the most troubling and dubious. In a word, this report was a crock, and anyone who believes these numbers has lost his or her grip on reality.

And that's precisely what happened on Wall Street. The Dow shot up more than 120 points before the analysts began poring over the numbers and coming to their bosses shaking their heads. The numbers simply do not jibe and traders, once wind of the discrepancies hit the street, began unwinding positions, sending the markets back to unchanged and slightly into the negative by early afternoon. Only some spirited tape-painting prevented an all-out rout.

Dow 13,058.20 +48.20; NASDAQ 2,476.99 -3.72; S&P 500 1,413.90 +4.56; NYSE Composite 9,451.17 +56.13

Naturally, most of the civilized world will never take a second glance at the Non-Farms Employment data for April 2008 and simply take the government at its word. Some of us have to be doubters, however, and this writer has no doubt whatsoever that government figures are today more maligned, politicized and unreliable as to be nearly completely useless.

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What the loss of "only" 20,000 jobs in April does is set the stage for job gains in May, June and beyond and more bogus stories about the "recovering" economy. This, of course, will suit the current administration perfectly well, as they will be able to laud praise upon Fed Chairman Bernanke and Treasury Secretary Paulson for wise stewardship in averting recession.

The truth, on the street and in homes across America, will be in stark contrast to these lies, but the media will gobble up the phony story from the government like a pack of hungry guppies because they have just about the same capacity for critical analysis overall.

We're facing a serious dilemma in the country over the next six to eight months. We're not only going to have to elect a new president, but also return or replace hundreds of members of Congress, and do so armed with faulty data, concocted news and outright lies via the government and the media. It's time the American people take back their government or just quit the charade altogether and stop paying taxes, voting and participating in the demise of democracy.

That said, the market data on the day was as mixed as the indices. Advancing issues beat decliners, but it was nearly a deadlock, 3.143-3,035. New highs shot ahead - for only the fifth day in six months time - of new lows, 166-148.

Commodities didn't miss out on the opportunity to tack on gains. Oil rose $3.80, to $116.20. Gold was up $7.10, to $858.00 and silver added 26 cents to $16.47. The gains in basic materials and metals was largely technical, following days of steep declines, though one should assume that oil is poised to price quite a bit higher in coming days.

All told, the bogus labor figures, like the crooked GDP figures earlier in the week, allowed the rally in equities to continue uninterrupted. One might guess that a day of reckoning is coming for all the manipulations, malignancies and mistaken trust. That day may not come until some far off date, sometime in 2009 or beyond, but by then the damage done will have been so severe that fixing it will be neither painless nor quick.

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