Friday, September 07, 2007

Today's Jobs Numbers: CNBC Fans The Flames of Panic

Where does one begin on this topic?

First, the facts, so to speak. Today's non-farm payroll numbers came in so low that they recorded a net loss of jobs in the US economy recently. Expectations were for a much higher number.

The questions now on the table:

Is the US economy now in, or about to enter, a recession?
Has the Fed dithered in the face of obvious data requiring a rate cut?
Does Ben Bernanke now 'have mud on him,' as a CNBC on-airhead anchor so callously asked?
Will the Fed now cut the Funds rate later this month and by how much?

As I write this at 11AM, EDT, the equity markets are falling. The S&P500 Index is off by about 1.5%.

It probably will not help that CNBC is prominently featuring guests who are screaming that we are now in a full-blown recession. Among those CNBC chose to lead this ill-advised, partially-informed charge, is none other than their resident self-annointed know-it-all, Jim Cramer.

Cramer, a journalist and lawyer by training, has no bona fides in economics. Nonetheless, he was featured this morning on CNBC, loudly and confidently proclaiming that 'we've been in a recession for months.'

I'll believe it when Brian Wesbury and/or John Rutledge confirm it. But on Cramer's uneducated hunch? No, thanks.

Is it necessary, or even ethical, for CNBC to be featuring such uninformed babbling in the guise of news?

Throughout this morning's coverage, the anchorman named Carl (I can never recall his last name) and most of their guests continued to look for the darkest implications of the jobs number. Carl was the one asking several guests if this single employment number did not now sully Ben Bernanke's entire reputation as Fed Chairman?

The way I view this is as follows. A single month's payroll number is announced. Whereas, in years past, some experienced, educated and trained economists would work with the data to arrive at some tentative conclusions, now we have a world full of amateur economists, analysts, and investors all reacting at once to the news.

Remember, too, that roughly 90% of those hearing this news are less skilled at investing or analyzing than the top decile. But they may well control the movement of more money in financial markets.

Thus, we are probably in for several days, if not weeks, of poorly reasoned reactions by the vast majority of (mediocre) investors.

Are we genuinely in a recession? It's not clear yet. I read some interesting information in the Wall Street Journal today referencing some research out of Goldman Sachs. The work is based upon dividing the US into 20 regions, and forecasting recession based upon how many regions are simultaneously losing jobs. In the past, eight regions with shrinking employment led to recessions. Currently, as I recall the article, twelve are in decline.

Time will tell. On one hand, one payroll report does not tell all. On the other hand, as another CNBC guest noted, the monthly payroll numbers have been shrinking, though still positive, for a year.

It could well be that the Fed will cut the Fed Funds rate by a quarter, or even half a point later this month. However, now it's likely to be to cushion the pain of a softening economy, not simply to bail out New York and Connecticut hedge fund managers.

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