Jobs

Fundamentals: The economy will go into a double-dip recession if jobs growth doesn't pick up. We have three jobs reports to consider. Yesterday the ADP jobs report came in a little bit better than expected. The ADP survey is skewed toward construction and contractors and as a consequence it is the least reliable of the three.

The government's payroll survey said 117,000 jobs were created. This is a horrible number, but better than expected. In the Great Moderation Era (GME) investors are trained to react positively to any data that beats a forecast, even if that data sucks, the forecast beat is everything. Investors are also trained to accept the payroll survey as more accurate than the household survey because supposedly the Federal Reserve only looks at the payroll survey. The GME is characterized by an almost religious belief in the power of the Fed. As far as accuracy, the payroll survey only looks at bigger companies, not self-employed people or very small businesses.

The household survey said 38,000 jobs were lost last month. The month before it said 445,000 jobs were lost. This survey looks at a wide selections of households, where people work for large companies, small ones, and are self-employed; in other words all facets of the labor market are included. It, however, has a smaller sampling size than the payroll survey, thus the Fed's supposed focus on payroll. Over time the smaller sampling size is less important because the household survey is casting its net over an increasingly bigger selections of households, therefore trends established by the household survey over several months should be more accurate than the other surveys.

Other data indicate the household survey is more accurate. So far this year the US economy is growing at a .8% annualized GDP rate. PMI surveys are plunging at a rate equivalent to what happened during the Great Recession, and so forth.

Another troubling economic indicator to watch is the yield on the ten year Italian and Spanish government bond. They both closed yesterday at about 6.2%. A few months ago they were around 4%. If they reach 7%, then Italy and Spain will probably need to be bailed out since the three PIGs needed to be bailed out when their debt yield reached 7%. It seems that the only way to stop the two large Mediterranean countries from reaching 7% would be if the ECB were to start aggressively buying their debt. There are rumors today that this might be happening.

If Spain and Italy require bailing out in the same way that the PIGs did it will be very bad for the global economy because France and Belgium will then need to be bailed out as well. In other words, Germany will have to essentially bail out most of the Euro-Zone, which is impossible.