Wednesday, February 02, 2011

Does Bernanke Read This?

Challenger, Gray & Christmas, Inc. is a unique, veteran outplacement firm whose seasoned principals Your Editor has had the pleasure to encounter over the years.

Now, the good folks at Challenger, Gray also happen to tally and report monthly job cuts based on their own experience in the real world, similar to the way payroll processing giant ADP reports monthly job creation based on its own experience in the real world (see “The Fed in La-La Land” just below).

And today’s job cut report from Challenger, Gray is a head-turner.

Anyone bothering to read the press release will find it includes the phrase: “Lowest January on Record”—and no, they are not talking about job creation, they are talking about job cuts.

But don’t take it from us. Take it from the actual press release yourself:

January Layoffs Down 46% From Year Ago

CHICAGO, February 2, 2010 – The slow pace of downsizing that marked the second half of 2010 appears to be continuing into 2011, as employers announced plans to cut 38,519 jobs in January. While that is an increase from the previous month, it marks the lowest January total on record, according to the report released Wednesday by global outplacement consultancy Challenger, Gray
& Christmas, Inc.

January job cuts were up 20 percent from December, when planned layoffs totaled 32,004; the lowest monthly figure since June 2000 (17,241). Compared to a year ago, however, last month’s job cuts were down sharply, falling 46 percent from the 71,482 job cuts recorded in January 2010.

The 38,519 job cuts last month represents the lowest January total since Challenger began tracking monthly layoff announcements in 1993…

And that’s just the first three paragraphs. For more color, read the full release at

So the Question for Today is, does Ben Bernanke read this stuff?

Jeff Matthews
I Am Not Making This Up

© 2011 NotMakingThisUp, LLC

The content contained in this blog represents only the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. Also, this blog is not a solicitation of business by Mr. Matthews: all inquiries will be ignored. The content herein is intended solely for the entertainment of the reader, and the author.


Matthew said...

I don't know. If he did, should it affect his view on monetary policy? Perhaps you think this means that there is going to be an imminent shortage of workers and dangerous increases in employment costs, but that seems highly improbable to me.

My take is that if the Fed tightens anytime soon, it won't be because labor markets are getting too tight, but because of problems in other areas.

cargocultinvestor said...

Of course he does.
I'm curious as to how you would like Bernanke's outfit to alter it's behavior.

john said...

Aaargh. Jeff, please don't succumb. "Color" is one of the worst analyst-speak words in business. I want to rip out my own fingernails when I hear it.

Sean said...

If he did read it, wouldn't he be happy about it? I don't follow the leap of logic that says that means Bernanke should ease up on the easing.

Unemployment is still 10% and inflation is still 0%. I'm sure inflation is coming from commodity prices and federal stimulus, but isn't 5% inflation and 5% unemployment a much better outcome? Or even 5% inflation and 8% unemployment? It would help housing prices too, which would lead to a lot less friction and wasted productivity with the foreclosure and moving processes.

Or maybe you aren't concerned about inflation, in which case, what about Bernanke concerns you?

Jeff Matthews said...

Matthew asks whether there will be an imminent shortage of workers and thus an increase in employment costs.

The increase is already happening in high-skill areas (Google raised salaries 10% across the board), but not broadly. The real increase thus far is in commodities.

CargoCult asks how we'd like the data to alter the Fed's behavior.

Far be it for us to suggest what the Fed should do moment-by-moment...but it appears obvious the Bernanke Fed is repeating the Greenspan Fed mistake post 9/11. The bubble, this time, is not yet housing, but it is in commodities, and it is, as Larry Kudlow likes to point out, toppling governments in the Middle East.

John hates the word "color," as in "For more color, read the full press release." And while we hate analyst-speak as much as the next guy, "color" has never been on our watch list in the way "Secret-sauce," "How should we think about," and "Granular" are.

Sean repeats the current line of thinking that "unemployment is 10% and inflation is 0%."

Actually, unemployment is a lot more than 10% for non-college grads. It is under 5% for college grads.

And inflation is a lot more than 0%. Just ask Hershey, Kellogg, Ford, Whirlpool and all the hundreds of companies that have reported rising costs and rising prices thanks to Bernanke's free-money escapade.

Does it bother anyone else that the Fed now owns more US Treasuries than China?

Thanks, nonetheless, for the opposing views. Unlike Bernanke, we actually read them!



Gordon said...

Yes, Bernanke isn't the person to pay attention to while a recovery is going on. Such is the problem with the rear view mirror.

Thing is, though, that the folks you're paying attention to, corporate management, aren't exactly the most reliable sources, either. They are going to paint the brightest picture possible no matter what is actually going on. While a recovery is going on, they're going to look prescient, for sure. But you're never going to see the apex of the curve if you follow them, only the trough.

And right now, it is very possible that we're at the apex rather than the beginning of a long recovery.

Anonymous said...

Bernanke's outfit should buy up all the foreclosed homes across the country instead of recklessly injecting an unprecedented amount of money into the system. That would be a much better way of helping the real economy recover rather than creating these dangerous asset bubbles. Bernanke is a name that will eventually live in infamy.

Dan said...

Your not wrong Jeff, you just aren't as nuanced as the FED!

But seriously, there are a huge number of people unemployed in the US. Yes most of them do not have four year degrees, and yes companies have stopped firing (on average) and started hiring (modestly). However, the hiring is barely at the pace of labor force growth, and is certainly not at a rate fast enough to rapidly reduce unemployment.

The FED has a mandate to keep unemployment low. WWJMD? What would Jeff Matthews do? I don't really disagree with your comments, I just don't understand the point you are trying to make? Do you think that the millions of unemployed people are not a problem? Do you think the FED should not TRY something to promote employment for these people? Do you have an alternative course of actions the FED could take that would be unarguably superior? The FED is knowingly taking actions that are unprecedented and also highly likely to have unintended consequences. They have articulated the risks, and concluded they are doing the best of several unappealing actions.

Questioning the FED is mildly entertaining, proposing a superior solution - or asserting their is not a problem - would be greatly entertaining...

Jeff Matthews said...

Dan, the unemployment rate is now 9% as of this morning, down from 10% a month or two ago. "The trend is your friend," as they say.

And that's a good trend.

As for Anonymous' suggestion that the Fed should be buying houses, not treasuries, well, that is exactly the suggestion we made when QE2 was first announced. (Not "exactly": it would have to have been an FDIC program. But the idea is the same.)


Dan said...

Are you seriously proposing that the trend in unemployment is a decline rate of a percentage point every couple of months?
No wonder you think the FED is wrong. They will be wildly incorrect if that proves to be the trend in unemployment.

Anonymous said...

Dan, the unemployment rate is now 9% as of this morning, down from 10% a month or two ago. "The trend is your friend," as they say.

True, but straight-line extrapolation is hardly warranted. If you're Bernanke, you've got to be noticing that the states, having burned through reserve funds and stimulus dollars, are going to start relatively large layoffs, and soon. And the prospect of any additional fiscal stimulus at the Federal level is about zero.

Whether you think this is a long-overdue return to fiscal sanity or sheer bloody-mindedness, the fact is that monetary policy is going to have to carry the ball alone going forward -- there isn't going to be any help on the fiscal side.

cargocultinvestor said...

Jeff, you ask if it bothers anyone that the Fed owns more Treasuries than China? Add too, that the banks own a whack bought with free and easy Fed credit or exchanged for their junk debt, which is really the Fed buying through proxies. So why, with the economy turning the corner and the economic data indicating that QE stimulus isn’t needed, does the Fed continue?
Treasury has issued over $3.2 trillion in net new debt in the last 2 fiscal years. So far this year it's approaching $500 billion and the CBO is projecting a $1.5 trillion deficit for fiscal 11. It seems to me that the Fed is buying Treasuries because supply outstrips demand. So what the Fed is saying to me is: Look, we’ve loaded up the banking system and it’s plugged. We estimate the government is going to spend about $600 billion more than we think they can borrow this year, so we're going to have to just print it. We can stop printing money when the government stops spending more than they can borrow, not before.
The assumption that there is a market for $1.5 trillion in new Treasuries annually strikes me as absurd. It’s over 10% of the GDP of by far the largest economy in the world . US savings are what, about $700-800 billion annually? Where on earth do people think that kind of money is coming from?
This interpretation of Fed actions has the attractive attribute, unlike most theories on Fed behavior, of not requiring Bernanke to be crazy.
It predicts more QEs higher inflation and of course bubbles. We'll see.

Anonymous said...

Professor Jeff:

I don't think Bernanke has time to read stuff like the Challenger Gray and Christmas report because he's too busy making speeches defending QE 2 to anyone willing to listen. Sadly, I believe he's in the dark about commodity inflationary pressures companies are experiencing and are either unwilling or unable to pass along to end users/consumers. Time will only tell, though, when the Treasury bond market "dislocates" due to Bernanke's failure to raise interest rates in time to quell the pressures and expectations inflation has on incomes from both a personal and corporate level. I could be wrong, though.

BTW - I know this is way off topic, but will you be going to the Berkshire Hathaway confab this year? Will you be letting readers ask questions again to pose to the Oracle? Looking forward to this year's trek and posts from you, as the past year has been quite a turnaround for Mr. Buffett given his smart and timely acquisition of Burlington Northern.

Dan said...

"Does Jeff Matthews Read This?"
June's US employment report doesn't have a single redeeming feature. It's awful from start to finish. Non-farm payrolls increased by only 18,000 last month, ... downward revision worth 44,000 to the gains in April and May. The weakness was in the private services sector, which added only 53,000 jobs. The 12,000 decline in temporary jobs was particularly disconcerting as it suggests there could be even worse to come. The public sector shed 39,000 jobs last month too, with the Federal government now beginning to fire workers as well as state and local governments. The household survey measure of employment shows an even more severe 445,000 drop. Even with a 272,000 decline in the labour force, the unemployment rate still ticked up to 9.2%. The participation rate fell to a 27 year low of 64.1%. Adding to the bad news, average hours worked ticked back down to 34.3, from 34.4, while average hourly earnings were unchanged... judging by this report, that rebound hasn't started yet.

WWJMD? I continue to fail to see how unemployment is not THE major story, politically, economically, and for investors (of course a slack labor force is wonderful for investors). I think the FED is right to be taking extreme measures in any effort to improve employment...

Enjoy the Buffet pieces by the way. Thank you