September 18, 2003

More Bad Employment News

It is now looking positively unlikely that the September payroll numbers will show employment picking up in September:

Jobless claims drop to 399,000 in latest week - Sep. 18, 2003: Jobless claims fell last week, the government said Thursday, by more than analysts expected, dropping just below the benchmark 400,000 that signifies job-market weakness. The Labor Department report said 399,000 people filed for benefits in the week ended Sept. 13, compared with a revised reading of 428,000 in the prior week. Economists, on average, expected 410,000 new claims, according to

Posted by DeLong at September 18, 2003 08:04 AM | TrackBack


Brad: A brief question from a former economics major who long ago forgot nearly everything he was taught-- when the statistic "(x) jobs have been lost in this Administration", are we talking about the actual people who are jobless, the number of jobs actually taken off the denominator, or a combination of both?

I know that the unemployment rate recently shrank almost entirely because the labor pool itself contracted.

Posted by: Norbizness on September 18, 2003 08:25 AM

Dunno, Brad. CNN.COM said this was good employment news.

Posted by: Chuck Nolan on September 18, 2003 08:25 AM

>>Dunno, Brad. CNN.COM said this was good employment news>>

Does better than expected bad news equal good news?

Posted by: richard on September 18, 2003 08:40 AM

>>Dunno, Brad. CNN.COM said this was good employment news>>

Does better than expected bad news equal good news?

Posted by: richard on September 18, 2003 08:44 AM

Does The Administration Really Have A Plan To Cut The Deficit In Half?

This analysis shows that the claim that Administration policies will halve the deficit over the next five years essentially rests on accounting games, as it uses deficit projections for 2008 that omit large costs that are very likely or inevitable, including the costs of proposals the Administration itself intends to submit....

Posted by: anne on September 18, 2003 08:49 AM

"Does better than expected bad news equal good news?"

No! Repeatedly the press just now takes an arbitrary data point, and then cheers when the data point proves less bad than expected. The actual numbers so far for September show another month with no meaningful job creation, and likely job losses. Remember the Administration claimed in June that we would find ~5.5 million jobs created by December 2004. Good grief, we lost ~130,000 jobs in July and August. September seems all too weak as well.

Posted by: anne on September 18, 2003 09:01 AM

I was being facetious. I personally think the strong recovery being forecast for later this year is not gonna happen.

Posted by: Chuck Nolan on September 18, 2003 09:05 AM

The IMF World Economic Outlook, interestingly, is pretty bullish about the United States, but no more so about the rest of the world (except Japan, for which the Fund also has upped its forecast). See:

The IIE, in contrast, is more bullish about just about everybody. See:

At any rate, it's getting harder and harder to find dedicated pessimists out there. Maybe the job outlook, allowing for the appropriate lag, is not so bad after all. I hope so.

Posted by: Jim Harris on September 18, 2003 09:14 AM

TV business coverage amounts to little more than stock market cheerleading. It takes the view that investing and stocks can be a get rich quick deal. Most people that go that route lose their shirt.

Posted by: bakho on September 18, 2003 09:25 AM

The average time from the end of a recession to the beginning of recovery in the job market is about 2.5 months, since 1945. We are now 21 months past the resceesion and the job market really "appears" to be still worsening. This time is different. This is no usual lag, there has been no such lag before.

I wish not to be a pessimist or optimist, but I find the jobs problem continuing and holding down wage increases and so limiting consumer demand. Unless there is a demand spurt, I do not know how we are to get much hiring.

What is bothersome about the IMF report is the emphasis on the American economy as a world driver. I hope so, but where where where will the demand come from?

Posted by: anne on September 18, 2003 09:29 AM


Posted by: jd on September 18, 2003 09:36 AM

from an article at Salon:


Posted by: Antoni Jaume on September 18, 2003 09:39 AM

Well, I've found a (relative) pessimist after all, the IIF:

But even the IIF isn't predicting doom, it's just that they're emphasizing the sustainability issue.

Posted by: Jim Harris on September 18, 2003 10:08 AM

Yeah, now 399k jobless claims is "good news" in the media. Funny in a not kind of way. Brad already poked a pretty good hole in the significance of 400k. Not to mention that just about every week they end up revising these numbers upward the following week. Next thursday we'll hear that, oh, did we say 399k? What we really meant was 406k. Last week's was revised to 428k. Ouch!

Posted by: Chibi on September 18, 2003 10:16 AM

Sustainable recovery. There is the debt issue again. We need a surge in consumer spending that lasts quarter after quarter to close the gap in jobs that opened with the recession and has never stopped widening. Can American consumers provide such a demand surge? Though demand for homes and cars and household furnishings has been strong since the end of the recession, overall demand has been weaker than in any recovery since 1945. I am inclined to blame consumer debt and low wage increases.

Posted by: anne on September 18, 2003 10:24 AM

Hmmmm, italic tags in comments are turned off.

>Not to mention that just about every week they
>end up revising these numbers upward the
>following week. Next thursday we'll hear that,
>oh, did we say 399k? What we really meant was
>406k. Last week's was revised to 428k. Ouch!

I really should pull up the historical initial-claims estimates for the last eighteen months and plot them beside the corrected-actual-claims numbers.

It's not that this sort of jiggerypokery is unique to the federal agencies -- certain private-sector numbers are equally methodologically suspect and routinely massaged, consumer sentiment being one of my favorites.

Nor is it that the feds have just now succumbed to the lure of putting up ersatz numbers; the habit of concealing bad news in quiet revisions has been around since the late '80s.

But it's just become so especially brazen of late that the next Administration may face a real crisis of confidence in their public pronouncements, sensible minds having come to mistrust such pronouncements on principle.

There's a Gresham's law corollary with regard to information: bad drives out good. And noisy economic information can be every bit as ruinous as is a debased currency.

Posted by: marquer on September 18, 2003 10:32 AM

Good Grief!

AP - Encouraging jobs data and a largely upbeat estimate of future economic activity lifted stocks....

The Index of Leading Economic Indicators, a closely watched gauge of future economic activity, rose 0.4 percent in August to 113.3. The figure was in line with analysts' expectations, and followed a revised 0.7 percent increase in July, but the assessment by the Conference Board also showed the current business climate had stalled.

Wall Street also was cheered by a Labor Department report that new claims for jobless benefits fell by a seasonally adjusted 29,000 to 399,000 for the work week ending Sept. 13. It was the lowest level of claims since the week ending Aug. 23, and marked the first time since then that claims dipped below the 400,000 mark.

``This is a nice rebound,'' said Tim Smalls, a trader at SG Cowen Securities. ``We've got some decent economic data. The jobless claims were a little better than expected and the leading indicators were right in line with expectations. That's benign enough for the market to move higher.''

Posted by: anne on September 18, 2003 10:35 AM

Bakho says, "TV business coverage amounts to little more than stock market cheerleading." But why is that? What incentive would drive a TV business reporter to sugar-coat the numbers?

Posted by: joe on September 18, 2003 10:42 AM

"What incentive would drive a TV business reporter to sugar-coat the numbers?"

Were I a Wall Street economist or analyst, I would adopt the strategy of being a general bull about the economy and the stock market. The chances are that I would be right more often than not, and bullishness makes my firm and myself money money money. Were you really waiting for Wall Street to call "sell" in 2000?

Since Wall Street slants heavily to bullishness, that is what reporters will generally report.

Wall Street Week on PBS shed every single bearish analyst for the program during the bull market of the late 90s. There were few bears on the program to begin with and they were rather nutty.

Posted by: anne on September 18, 2003 10:53 AM

I agree with anne here. Since I work in a firm active in both stocks and gov't bonds, I see every day how bullish sell-side equity analysts are compared to the often more balanced govvies analysts.

Brad had an interesting model in an impressive paper called Noise Trader Risk..:

"The risk resulting from stochastic changes in noise traders’ opinions raises the possibility that noise traders who are on average bullish earn a higher expected return than do rational, sophisticated investors engaged in arbitrage against noise trading. This result obtains because noise trader risk makes assets less attractive to risk-averse arbitrageurs and so drives down prices. If noise traders on average overestimate returns or underestimate risk, they invest more in the risky asset on average
than sophisticated investors and may earn higher average returns. This result is more interesting than the point that if noise traders bear more fundamental risk they earn higher returns: our point is that noise traders can earn higher expected returns solely by bearing more of the risk that they themselves create. Noise traders can earn higher expected returns from their own destabilizing influence, and not because they perform the useful social function of bearing fundamental risk."

Posted by: Mats on September 18, 2003 11:18 AM

Another reason for analysts bullishness. For stock traders, there is always a bull market somewhere. We can find that clearly in 2000, 2001, 2002. This year, the bull market is just about everywhere.

Mats - How readily in your experience do traders add value beyond what could be gained by indexing? Tricky question, really.

Posted by: anne on September 18, 2003 11:33 AM

Mats has a pleasant Blog!

Press Silent as Krona Gains on Euro

- We do enjoy Sweden!

Posted by: anne on September 18, 2003 11:38 AM

No we don't!

Posted by: jd on September 18, 2003 11:44 AM

Couple of things to remember when reading press coverage of economic events, beyond the tendency on the equity side to say whatever is necessary to sell stocks. One is that, to the extent economic data affect financial market prices in the short run, it is due to differences between expectations and the reported results. A 399k jobless claims tally may not objectively be "good news" but as long as it is better news than was expected, it is good economic news to traders. When reporters confuse the two, that's a problem, but when they quote folks in the market saying that 399k new jobless claims is "good", there is nothing screwy about that -- the forecast range was something like 400k-420k new claims.

Next thing to keep in mind is that the approach of scheduled events often reduces the volume of financial market trade. Trade slows down ahead of the event in case of surprises. Low volume means other trades are held back in hopes of better pricing, or at least prices less likely to be moved by large trades, until the data are released. There is often something going on other than a response to the strength or weakness of the data, but with trade picking up right after the data, the impression is that the data drove trading. That's just not always the case. Reporters have a very hard time selling editors on something like "hedge funds were unwinding trades which involved selling old ten-year notes while buying new ones, and needed the post-data liquidity to get the trade off all at once, so there would be less piggybacking by other accounts." Unable to tell the real story, or maybe to get the real story, they instead find somebody who says, "oh, the maarket saw the good jobless claims data and ..." As a general rule, distrust any statement that attributes a monolithic point of view to "the market."

Posted by: K Harris on September 18, 2003 12:20 PM

i'm generally a lurker (not nearly as smart as you all nor as confident in my writing skills) but am moved to post because i simply don't understand this market rally...dow up 200+ points this week. i understand, as indicated above, it's in the interest of all involved to put positive spin on news. but this is people buying stocks, betting on something.....but what?

Posted by: leslie on September 18, 2003 01:33 PM

>but this is people buying stocks, betting
>on something.....but what?

My impression is that much of the rise in recent weeks has been fuelled by short-covering.

Something over a month ago, the usual report on Commitments Of Traders came out, COT being an interesting window into futures market activity, and I noted at the time that the big commercial trading firms were heavily short both the Nasdaq and S&P futures.

I suspect they're not happy in retrospect about having had those positions on, and they plus most other shortsellers have been buying them back in under pressure.

Bear market rallies do occur, more frequently than one would expect, and they can really look like moonshots while they're going on -- to a great degree, because of panicky shorts buying to get flat, or even double-buying to reverse 180 degrees from short to long in one go.

By way of example, the Nikkei has undergone a few spectacular bear rallies since the late 80s, with a lot of frantic short retractions, but the primary downward trend has always eventually reasserted itself.

Posted by: marquer on September 18, 2003 02:15 PM

>but this is people buying stocks, betting
>on something.....but what?

A corollary of the efficient market hypothesis is that no one knows the assumptions built into market prices. In other words, the answer to this question is "no one knows."

That being said, the market does seem very expensive.

Posted by: richard on September 18, 2003 02:45 PM

Am I the only one that thinks the numbers were cooked to stay under 400,000? 399,000 looks awfully suspicious.

Posted by: Chuck Nolan on September 18, 2003 03:05 PM


Welcome back. I sorta remember you. Pleese don't ever be shy agin. As the misssissippipellings ande gramathmical airors in many postings (mine expecially) will dememonstrate, we all have our foi gras. New playmates are fun.

I can't answer your question about motivation in the stock market. I think Marguer is probably on to something, a something which offers a simple trading motivation, without much reference to what is going on in the economy. I would also refer you to today's WSJ which reports a big rise in margin buying, apparently mostly by non-professionals. (Sorry, I don't have an on-line subscription, so no link.) Like Marguer's answer, mine tells you where the cash may be coming from , but nothing about the thinking behind the buying.

There are a couple of posts that suggest the government bean counters are cooking the data. I have been forced to look at the government economic data for many a long time, and I am unaware of any credible assertion that the data are intentionally skewed. I would, however, be happy to be educated on that point.

Posted by: K Harris on September 18, 2003 04:03 PM
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