NFP – SSA & Ben

Note: I wrote the following before the NFP #s. This comment is posted after the numbers. My thoughts on this were about as far off the mark as one could get. I said Red. We got Blue. I said Hot. We got cold. 

Ahem....
 


After the ADP numbers came out last month but before the release of the NFPs I wrote this:

I look at the (ss) payroll tax data in the context of the Non Farms Payroll numbers. Does the data from SSA have any predictive information on this critical monthly statistic? Not with any precision; has been my experience (and frustration) to date.

With that as a caveat, I have looked at this and concluded that the ADP report this morning suggesting a 300k increase in payrolls is overstating the number. We shall see soon enough.

Turns out the actual numbers were on the soft side of estimates, well below what the folks at ADP were saying (and charging for).

This Friday we get a look at payrolls for January. Today the Social Security Trust Fund released the Payroll tax information for February:

This is a look at the 2010 full year data including details for Jan. and Feb.:

It is my observation that there is a correlation between the relative change in tax receipts and changes in general employment. An important consideration in this is; “Does the forward month of data (February) give information regarding the month(s) preceding (January) changes in payrolls?”

If there is a correlation it is least obvious (to me) when payrolls are declining. It is somewhat more obvious when the level of employment is little changed. It appears to be most correlated when payrolls are expanding. This observation is reasonable as there are many time lags between someone losing their job and some time later when they get the last paycheck. On the other extreme the computers at SSA are relatively quick to recognize new hires as part of their forward month estimates of receipts.

My look of the numbers is that there is some clear evidence of continued job growth. My own way of calculating the January NFP comes up with an estimate of 310,000. This will not be the headline number for January. The headline number (according to my formula) will be 210,000. There will be a 100k prior revision (60k Dec., 40k Nov.)

I wouldn’t bet on my own numbers. Not yet at least. Should these numbers be what we get (more or less) it will come as a surprise. Last I saw the estimate was for +140k.

We have been in a rocky trading range for the long bond for six weeks. We’re pretty much at the bottom end at the moment. A hot NFP number could bring a downside break in the range. If we break towards 4.7% we could move quickly to a five handle.

Should we see evidence this Friday that payrolls are in fact improving it will be great news for Ben Bernanke. Or will it? An "above expectation" number on Friday will bring WTI to $100 in a week. The rest of the commodities group will move with it.

At some point someone of importance is going to tell Ben to get his foot off the pedal. That his policies are no longer necessary and have crossed over to being a destabilizing global force. It’s going to be very hard for him to say “no” when gas is $4, food is up 15% and payrolls are rising at 200k a month. That debate could well start this Friday.