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“The four most dangerous words in investing are: this time it’s different.” – Sir John Templeton
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Positive earnings news from the likes of lululemon (LULU) and MongoDB (MDB) plus a positive tone in overseas markets, where many benchmark indices are trading up over 1%, is pushing US equity futures higher ahead of the May jobs report. Reports that China is considering a new round of stimulus measures to support the property market has commodity stocks ripping higher following gains in Thursday’s session as well. The Senate also passed the debt ceiling bill, which will now move to the President’s desk. Its quick movement through Congress is a positive, but at this point, you can only rally on the same news so many times.
Heading into this morning’s jobs report, economists were expecting an increase of 195K non-farm payrolls (down from 253K last month), the Unemployment Rate to increase to 3.5% (from 3.4%), average hourly earnings to increase 0.3% (down from 0.5%), and average weekly hours of 34.4 (unchanged). The actual headline number was much stronger than expected (339K), but the Unemployment Rate was also much higher than expected at 3.7% and the highest since last October. Also, average hourly earnings were in line with forecasts and average weekly hours were weaker at 34.4. While the headline number is a bit of a shocker, given the higher Unemployment Rate, it’s unlikely to have much impact on FOMC policy forecasts.
This time is different, may be a dangerous phrase, but when it comes to economists’ forecasts surrounding the monthly non-farm payrolls report, this period really is like no other we have ever seen. As shown in the chart below, this morning’s release extended the streak of better-than-expected reports to 14 months. For over a year now, economists have been underestimating the rate of job growth in the US economy, and they still haven’t made the necessary adjustments to their modeling. In football, a coach only gets one halftime to make the necessary adjustments, but economists have had more than ten halftimes, and they still can’t get things quite right. If the definition of insanity is doing the same thing over and over and expecting a different result, Wall Street needs an army of psychiatrists.
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