Non-Farm Payrolls: Economists, The Weather, The Dollar And The Fed

It is something of a regret that I did not spend more than six weeks studying Economics at the London School of Economics, largely on the basis that I had the feeling it was an inferior place to Oxford. This may have been a mistake. But apparently not one that would have made a difference in terms of estimating the March U.S. employment data. A Bloomberg survey of 98 economists delivered a consensus figure of 243,000. They all got it wrong, the closest being out by 253,000. Apparently you cannot fool all of the people all of the time. Our economics graduate friends appear to have proved that this rule is incorrect. Indeed, even with all the brains, the algorithms and the six and seven figure salaries, it would appear that 98 monkeys throwing darts at a board would have stood more chance of hitting the correct 126,000 figure. All in all, this has been something of an embarrassment for the human race, well at least this particular part of it.

But actually, there is a defence. It is the weather. Global Warming was such over the late winter in the U.S. that it disrupted the economy via bone chilling temperatures and several feet of snow in many manufacturing areas. This is probably the reason that Global Warming is now referred to as Climate Change. Apparently, the chosen 98 were so “busy” that they did not have time to look out the window and see the snow, and were not able to factor in its effect. It might be added that as meteorologists have not exactly conquered their chosen field, so for economists the weather would be mission impossible.

In fact, I would argue that the real problem here is that the Non-Farm Payrolls should not even be on the podium as the top economic number of the month. As we have just seen, it is volatile, unpredictable (both for trained humans or dart throwing monkeys), and probably given the increasing dominance of China and other BRIC nations, not as relevant as it was even 5 years ago. We should stick to GDP – the figure for which the unemployment data are supposed to be a leading indicator.

That said, there is more to draw upon in the wake of the bad jobs number. Last month we were warned by the Federal Reserve that interest rates were going up – the expectation was as soon as June, conditional on the labour market stabilising and inflation heading back towards a 2% goal. But to seasoned observers these conditions were about as likely as Gordon Brown’s conditions for entry to the Eurozone a decade ago. Higher rates would cause the U.S. Dollar to soar and any economic improvement we have seen in recent years would evaporate. It was a lame move by Janet Yellen and friends, and the topping out of the greenback since underlines the way that the smart money has already worked out rates will not go up until well into 2015.

The only thing which would change such a scenario is a sharp bounce back for the Non-Farms next month. As we have established, March could have been a one month wonder, and the strong run of jobs growth data could resume. However, the problem for the Fed remains the same. It is boxed into a corner of its own making – the weak growth/deflation pattern, familiar in many parts of the Western world. This is likely to be a scenario which is with us for years, not months.