The devastating jobs report confirms my December recession call, now I bump up my recession call for December to 80% and January to 90%. As we speak thousands of economists and analysts are adjusting their brains into new reality. Bloomberg said:

None of the 80 economists surveyed by Bloomberg had predicted the decline in payrolls, which was the first since August 2003. The median forecast in the survey projected payrolls would rise by 70,000, compared with an initially reported gain of 18,000 in December. Forecasts of an increase ranged from 5,000 to 160,000.

Most economists are just extrapolating the trends, what a lack of imagination!

The second most important thing to learn is that the whole 2007 is revised down 376,000 jobs. That brings once again a very important conclusion that everyone must remember once and forever:

  • Employment is a strictly coincident indicator when economy tops
  • However it takes at least 3 month lag to properly estimate employment, which makes a monthly NFP report a lagging indicator
  • Employment is a lagging indicator at the bottom of the economic cycle, the calculation lag in the NFP report makes it even more lagging, it could lag the GDB growth bottom by as much as 6-10 months

I think we just got the most important NFP report in few years, which triggers a recessionary thinking. From now on the NFP report is quickly losing its importance again, because it will lag the bottom of economic cycle. I suggest to ignore it all the way down, it’s useless and it’s a brain trap.

The much better indicator to determine the end of recession is a sector rotation model, but it’s too early to discuss it – we have at least a half a year of violent downside straight ahead!