The Social Security Trust Fund (SSA) has provided key operating data for the month of September. This information allows for a rough estimate of this Friday’s NFP number.
The following chart compares the monthly data for FICA tax revenues at SSA (a proxy for total payrolls) for 2012 versus 2011:
A few observations:
- Payroll Tax revenues are up in 2012 versus 2011 for every month this year.
- The rate of improvement has declined in each quarter so far this year.
- The September increase was 2.25% YoY. This is a slight improvement from the 2.0% gains in July and August.
- The gain in PR receipts in Q3 is consistent with payroll growth of 150,000 per month.
My conclusions after looking at the numbers:
- The July NFP # of +163,000 is above recent trend and is not supported by the SSA PR numbers. The July number may be revised down by 15K.
- The current street estimate for the August NFP is 118,000. I would take the “over” on this estimate. My range is 140-150K.
- The SSA data suggests that 3Q 2012 GDP is lagging that of 2Q 2012. It is certainly less than 2%. It could be less than 1.5%.
Assume we do get an NFP of 150K. The question is, would this relatively good result tie Bernanke’s hand regarding the September 13 decision(s) by the Fed? I would think so, but I don’t think like Bernanke.
If the economy produces, on average, only 150k new jobs per month, then the unemployment rate will remain high (8+%), for a long-time to come. Ben doesn’t want that to be his legacy. The talk on Wall Street (and the manipulated financial press) is that a new round of QE is coming in a fortnight. It will be $500B in size (spread over 6 months). It will be directed at MBS securities.
Bernanke has referred to QE as “unconventional” monetary policy. He has said that prior unconventional policy actions were what saved the financial system during the “emergency” days of 2008. Maybe. But the story of QE has not been fully told as yet.
Bernanke needs to change his definition of “unconventional policies”. While QE1 and 2 may have been considered unconventional, QE3 will confirm that what was once unconventional, has morphed into something that has become very conventional. There is nothing “conventional” about QE. It’s dangerous that QE has gone from something contemplated only during an extreme emergency, to an everyday policy tool.
I know that some folks at the Fed will read this; I ask that they pass two questions along to the Chairman.
A) – What are the Fed’s expectations for the market/economic response to another round of QE? Assume we get a six-month, $500Bn LSAP targeted at MBS.
Now turn it around.
B) – What are the Fed’s expectations for the market/economic response when the Fed announces that it will sell $500Bn of ten-year paper from its bloated inventory over a six-month period?
I grant the Chairman that if A is undertaken, there would be some modest positive consequences to both the capital markets and the broader economy. Something like a temporary 5% increase in the S&P and a 0.1 to 0.2% decrease in the unemployment rate might follow.
B must follow A at some point. When it happens, it will have very substantial consequences. Interest rates will shoot up as the Fed crowds out all other borrowers (including the US government). The stock market will fall like a stone at the announcement and continue down each month as the Fed sells. The global markets will see/feel the consequences. Banks, pension funds and savers who are loaded to the gills with long-dated bonds with 1% yields will get crushed. Some financial institutions would have to fail. A recession would be inevitable under these circumstances; unemployment would rise as a result.
My point is that there are extremely asymmetrical results associated with more QE. Yes, there might be a few more months of “party time”. But when the party ends (it will), the cost of the party will be ten times the short-term gain.
Ben Bernanke can afford to throw another party in September. The reason is that he will not be around when the inevitable cleanup of his mess starts. He’ll be back in Princeton when the SHTF.
How can one man poison the country’s well ? Easy. There is no one around to tell Ben, “No more!” This is a one-man show, and this man is bent on destroying the future, in exchange for a few pips in the unemployment rate and another pop in the S&P today.
At some point in the future Ben and his policies will be discredited. The cost will be the undoing of the country. Ben has converted monetary policy to a three-month time horizon. He gives zero consideration to the long-term consequences of his actions. I get little comfort knowing that the history books will prove that he erred at a critical time. I have kids; they will be paying for Ben’s mistakes for the rest of their lives.