Today's Tidbits

Quality of Labor Market Data Remains Questionable
From Bloomberg: “Some key labor market figures simply aren't adding up these days, leaving Federal Reserve officials in doubt about what's happening in critical parts of the economy. In some cases, the participation of illegal immigrants in the workforce may be roiling the data. With the economy operating at or close to full employment, so-called unauthorized workers have become an important source of new hires for many businesses. Foreign-born workers -- an unknown proportion of whom were in the country illegally -- accounted for 45 percent of all employment growth last year, according to the Bureau of Labor Statistics. The question is how unauthorized workers and their employers respond to the household and business establishment surveys on which the highly important employment, unemployment and payroll job figures are based. It may be that those responses have been changing over time. Housing-industry employment is at the top of the list of the data discrepancies. Housing starts have plummeted and the number of units under construction has fallen 15 percent in the year ended in April. However, the BLS's monthly survey of business establishments showed 3.3 million people still at work on residences last month, only a 4 percent drop from a year ago…According to Ray Stone of Stone & McCarthy Research Associates, one possible explanation is that thousands of unauthorized workers employed by very small subcontractors have lost their jobs. In some cases, the workers may be been paid ``off the books,'' so their departure may not be reported. And it may be that such businesses are underrepresented in the sample of companies reporting payrolls each month, Stone said. If so, then payroll employment may have been higher than it appeared to be before the housing slump began. Another puzzling piece of payroll data emerged earlier this year when the BLS released its annual benchmark adjustment for March 2006. The adjustment, which is based on quarterly federal unemployment insurance payments by employers, was an unusually large one, adding 752,000 more workers to payrolls as of that month. A significant portion of the adjustment came in three states, California, Texas and Louisiana, with the second-largest impact in construction. The first two states have a high proportion of foreign-born workers, many of whom are employed in construction. Stone published an analysis last year suggesting that unauthorized workers who may not have been reported on payrolls earlier were put there as a result of a ``slew of actual and prospective legislation that increased penalties on employers that knowingly hired illegal immigrants.'' That is, the prospect of penalties caused employers to seek documentation for workers, some of whom probably had fake papers. Now, however, there are new questions about the accuracy of the payroll data. First of all, the BLS routinely adds a substantial number of workers to its monthly payroll figures to make up for the fact that in a dynamic economy, as new companies start up and old ones close their doors, the sample of businesses providing payroll data routinely undercounts the number of workers. This ``birth/death'' model doesn't take into account cyclical fluctuations in the economy, and on May 18, Stone told his clients that as a result, payrolls may have been growing more slowly than reported since the benchmark adjustment. Stone noted that on May 16, the BLS released its Business Employment Dynamics -- or BED -- report for the third quarter of 2006. The report provides data for changes in payroll employment using the unemployment insurance filings from businesses and sorts it according to whether the businesses are new or expanding, or contracting or closing. In other words, it tracks the information the ``birth/death'' model is supposed to provide in a more timely fashion. ``The new data revealed a seasonally adjusted third-quarter private payroll gain of only 19,000, in sharp contrast to the BLS' published monthly payroll increase of 498,000 for the quarter,'' Stone said. For the 2006 second and third quarters together, the BED data show a payroll increase of 485,000, compared to 808,000 for the regular payroll figures. For the six months, that's the difference between monthly payroll gains of 80,000 versus 135,000, Stone said. Many economists and more than a few Fed officials have been puzzled why various labor market measures seem to have been so little affected by the downshift in economic growth to about a 2 percent annual rate or less in the middle of last year. The BED report hints that maybe the payroll data at least will show just such an impact in the next benchmark revision. And then there is the 4.5 percent unemployment rate. Why has it remained so low? Well, suppose many unauthorized workers -- those are the illegal immigrants -- don't show up in the household survey on which those monthly figures are based. Yet when they have a job they are, in reality, part of the workforce. And when they lose a job, they don't get counted as unemployed. They just aren't part of the workforce anymore. There's another piece of evidence that that has been happening. Remittances from Mexican workers in the U.S. to their families at home have dropped significantly in recent months.”

Benefits of Encouraging Potential
From Newsweek: [After a test when the instructor]”praised the kids' performance, she didn't praise them all the same way. She praised some for their natural talent (What a great score! You're so smart!), while others were praised for their effort (What a great score! You must have worked very hard!). This may seem like a subtle difference, but to the developing mind the two messages are night and day. The former conveys the belief that people's abilities and traits are fixed, written in concrete, while the latter underscores the potential for growth and the value of old-fashioned effort. The results were immediate and unambiguous: the kids who were told they were smart immediately became cautious, shying away from any further testing that might expose weaknesses. The kids who were praised for their effort, by contrast, became hungry for new challenges. What's more, when the kids were subsequently required to solve very difficult problems, on which they all did poorly, the "smart kids" took the failure as a blow to their self-worth; where they had been smart, they were now dumb, irrevocably. The effortful kids just dug in more… the kids who were taught about human potential were much more highly motivated as math students than their classmates who did not get the neuroscience lessons. What's more, those with a newly acquired belief in effort and growth had better grades than those who were still stuck in the belief that temperament and ability are fixed. They believed that they could flex their intellectual muscles, so they did, and the effort showed up in their achievements.”

MISC

From Dow Jones: “After a relatively tame morning hovering around unchanged, Treasurys have pushed decisively into the red Tuesday afternoon amid a slew of new corporate bond issuance. [10y Treasury yield +4.5bp]… The dollar was modestly stronger, near multiweek highs Tuesday afternoon against the yen and the euro in a range-bound, data-light session. The market was driven mostly by prodollar
sentiment amid reduced expectations of Fed rate cuts in 2007 due to improved U.S. economic data…. Crude oil futures extended losses…”

From AP: “Wall Street traded mostly flat Tuesday, as the latest round of takeover activity offered some support to stocks but wasn’t enough of a catalyst to push the market higher.”

From The Los Angeles Times: “Bearish bets on the direction of stock prices hit a record on the New York Stock Exchange this month, even as the market has continued to streak higher… Short sellers borrow stock, usually from a brokerage's inventory, and sell the shares in the open market. The goal is to repay the loaned stock with shares bought later at a lower price…The NYSE composite stock index has surged 10% since mid-March, yet the number of shorted shares has risen nearly 12% in the period.”

From Bloomberg: “Treasuries fell, pushing the benchmark 10-year note's yield to a three-month high, as traders speculated the U.S. economy is gathering momentum.”
From Suntrust: “Talk is still centering around the absence of Asian buying at higher yields, the fact that China has parked a lot of money in T-bills recently…”

From Dow Jones: “Richmond Fed president Jeffrey Lacker, the central bank’s toughest inflation fighter, … said the moderation in inflation in recent months was nothing more than noisy data… “I don’t think the moderation we’ve seen [in inflation] is statistically significant,”…”

From Lombard Street Management: “China is now exporting manufactured goods inflation rather than deflation…Actually, China had already overheated by 2004, but the global inflationary impact came solely through China’s voracious appetite for commodities and the spike in global oil/commodity prices. The authorities capped domestic energy prices and the excess of demand over supply had to be worked out through energy shortages. The US economy was the first to feel the initial impact of China’s overheating.”

From Dow Jones: “Economic activity contracted again in the Federal Reserve Bank of Richmond district in May. The bank reported that its manufacturing index for the current month was -10, from -11 the month before.”

From the Economist: “The global economy is at its least volatile since the 1960s…”

From Barclays: “…the Mexican national oil company PEMEX released yesterday its crude oil and NGLs production figures for April. The data shows that output remains on a downwards trend, with total liquids production having fallen by 5.5% Y/Y in April and 5.6% for the year to date. The fast decline in Mexican oil production was also highlighted by the EIA in its latest edition of the International Energy Outlook released yesterday, where it revised its forecast for Mexican oil production in 2015 down by 1.2 mb/d to 3 mb/d.”

From Dow Jones: “In 2005, 94% of the 1.7 billion barrels of oil equivalent that Exxon added to its reserve base came from its natural gas reserves in Qatar. “

From JP Morgan: “While seasonal hurricane forecasts are notoriously inaccurate, the runup to the 2007 hurricane season has been marked by amazing consistency throughout the meteorological community — each of the noted forecasters are expecting above normal activity.”

From CNN: “In January, more than 60 percent of all mortgage loans were made to prime customers with FICO scores of 650 or more.”

From RBSGC: “LIBOR OASs remain near the widest levels of 2007 [for mortgages] but with production expected to continue to be heavy (ARMs to fixed refinancing) and yields still not high enough to entice investors…”

From The Wall Street Journal: “Last year, about 29% of car buyers who traded in a vehicle to buy a new one owed more on their car loans than their cars were worth, compared with 20% five years earlier. The problem has become more vexing as consumers increasingly view life's expenses, from mobile-phone and cable-television bills to car payments and mortgages, in terms of monthly payments rather than total cost. Researchers say few car buyers, for example, know the actual full cost of their vehicles or stop to consider how much more expensive it is to take on a longer-term loan. Extending the average car loan to five years from three years costs the buyer more than $2,000 in interest…”

From USA Today: “China produces 75% of the world's garlic… About 40% to 45% of the apple juice consumed in the USA comes from China… China is the No. 1 apple producer in the world and the leading apple juice exporter. "They grow about 47% of all the apples on the planet. We (U.S. farms) grow about 11%,"… China is also the world's largest producer of honey … Almost 19% of the honey consumed in the USA comes from China.”