The employment report does not look pretty

Here's how to read it.

On the face of it, parts of August’s U.S. employment report, released on September 6th, don’t look too pretty.

Non-farm payrolls increased by a tad less than expected, (but only missed by a paltry 11,000), and there were revisions down totalling 74,000 to the previous two months’ figures, and at first sight the reasons for the drop in the headline level of employment from 7.4 per cent to 7.3 per cent look disappointing, in that the fall was driven by a drop of 312,000 in the labour force seeking work, whilst the numbers of those in work actually declined by only 115,000, but look closer and you discover that the number of people who aren't working, but would like to be, actually collapsed by 334,000 in August! Think about that. What that is telling us is that work patterns are changing-there are more who want to work only part-time and this fall is also evidence of something much more important to the Fed-a structural change in the U.S. economy that implies it is not going to be able to employ as many people, even when it is growing full tilt-maybe the famous, but enormously difficult to measure, output gap, has shrunk.

The so-called Household Survey of employment, which kicks out the headline unemployment rate, is notoriously volatile, when compared to the Establishment Survey from which non-farm payroll changes are calculated.

The above goes part of the way to explain why I feel these figures weren’t weak enough to stop the Fed tapering down its purchases of US Treasuries, (not Mortgage Bonds), at its 18 Sept. meeting. They may lead to a smaller reduction in purchases, but even that may not be the case. Why?

Well, even parts of the Household Survey were positive-average hourly earnings ticked up from flat in July, (initially reported as -0.1 per cent), to +0.2 per cent, and the average workweek increased from 34.4 hours to 34.5. The broader U6 measure of unemployment fell even further, to 13.7 per cent, from 14.0 per cent. Remember, the Fed told us it wouldn’t just look at the headline figure, but that it would drill down into its composition and look at other labour market indicators.

Just as importantly however, (especially given the volatility and margin for error of the employment survey), we have to remember that recently we have been treated to a veritable slew of positive data surprises, including a drop in the 4-week moving average of those making initial jobless claims to 329,000; a new post-recession low. Other good news has come in the shape of better than expected releases for Existing Home sales, Consumer Confidence, Vehicle Sales and, most encouragingly, as they are forward-looking indicators, the Institute of Supply Managers’ surveys of sentiment in both the manufacturing and services sectors.

None of the above should stand in the way of further advances for developed market equities. Yields are normalising for "good" reasons, and the Fed has done a good job in ensuring they don’t surprise us with their first steps towards tightening-this is not a repeat of 1994’s bond market rout.

Photograph: Getty Images

Chairman of  Saxo Capital Markets Board

An Honours Graduate from Oxford University, Nick Beecroft has over 30 years of international trading experience within the financial industry, including senior Global Markets roles at Standard Chartered Bank, Deutsche Bank and Citibank. Nick was a member of the Bank of England's Foreign Exchange Joint Standing Committee.

More of his work can be found here.

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Is defeat in Stoke the beginning of the end for Paul Nuttall?

The Ukip leader was his party's unity candidate. But after his defeat in Stoke, the old divisions are beginning to show again

In a speech to Ukip’s spring conference in Bolton on February 17, the party’s once and probably future leader Nigel Farage laid down the gauntlet for his successor, Paul Nuttall. Stoke’s by-election was “fundamental” to the future of the party – and Nuttall had to win.
 
One week on, Nuttall has failed that test miserably and thrown the fundamental questions hanging over Ukip’s future into harsh relief. 

For all his bullish talk of supplanting Labour in its industrial heartlands, the Ukip leader only managed to increase the party’s vote share by 2.2 percentage points on 2015. This paltry increase came despite Stoke’s 70 per cent Brexit majority, and a media narrative that was, until the revelations around Nuttall and Hillsborough, talking the party’s chances up.
 
So what now for Nuttall? There is, for the time being, little chance of him resigning – and, in truth, few inside Ukip expected him to win. Nuttall was relying on two well-rehearsed lines as get-out-of-jail free cards very early on in the campaign. 

The first was that the seat was a lowly 72 on Ukip’s target list. The second was that he had been leader of party whose image had been tarnished by infighting both figurative and literal for all of 12 weeks – the real work of his project had yet to begin. 

The chances of that project ever succeeding were modest at the very best. After yesterday’s defeat, it looks even more unlikely. Nuttall had originally stated his intention to run in the likely by-election in Leigh, Greater Manchester, when Andy Burnham wins the Greater Manchester metro mayoralty as is expected in May (Wigan, the borough of which Leigh is part, voted 64 per cent for Brexit).

If he goes ahead and stands – which he may well do – he will have to overturn a Labour majority of over 14,000. That, even before the unedifying row over the veracity of his Hillsborough recollections, was always going to be a big challenge. If he goes for it and loses, his leadership – predicated as it is on his supposed ability to win votes in the north - will be dead in the water. 

Nuttall is not entirely to blame, but he is a big part of Ukip’s problem. I visited Stoke the day before The Guardian published its initial report on Nuttall’s Hillsborough claims, and even then Nuttall’s campaign manager admitted that he was unlikely to convince the “hard core” of Conservative voters to back him. 

There are manifold reasons for this, but chief among them is that Nuttall, despite his newfound love of tweed, is no Nigel Farage. Not only does he lack his name recognition and box office appeal, but the sad truth is that the Tory voters Ukip need to attract are much less likely to vote for a party led by a Scouser whose platform consists of reassuring working-class voters their NHS and benefits are safe.
 
It is Farage and his allies – most notably the party’s main donor Arron Banks – who hold the most power over Nuttall’s future. Banks, who Nuttall publicly disowned as a non-member after he said he was “sick to death” of people “milking” the Hillsborough disaster, said on the eve of the Stoke poll that Ukip had to “remain radical” if it wanted to keep receiving his money. Farage himself has said the party’s campaign ought to have been “clearer” on immigration. 

Senior party figures are already briefing against Nuttall and his team in the Telegraph, whose proprietors are chummy with the beer-swilling Farage-Banks axis. They deride him for his efforts to turn Ukip into “NiceKip” or “Nukip” in order to appeal to more women voters, and for the heavy-handedness of his pitch to Labour voters (“There were times when I wondered whether I’ve got a purple rosette or a red one on”, one told the paper). 

It is Nuttall’s policy advisers - the anti-Farage awkward squad of Suzanne Evans, MEP Patrick O’Flynn (who famously branded Farage "snarling, thin-skinned and aggressive") and former leadership candidate Lisa Duffy – come in for the harshest criticism. Herein lies the leader's almost impossible task. Despite having pitched to members as a unity candidate, the two sides’ visions for Ukip are irreconcilable – one urges him to emulate Trump (who Nuttall says he would not have voted for), and the other urges a more moderate tack. 

Endorsing his leader on Question Time last night, Ukip’s sole MP Douglas Carswell blamed the legacy of the party’s Tea Party-inspired 2015 general election campaign, which saw Farage complain about foreigners with HIV using the NHS in ITV’s leaders debate, for the party’s poor performance in Stoke. Others, such as MEP Bill Etheridge, say precisely the opposite – that Nuttall must be more like Farage. 

Neither side has yet called for Nuttall’s head. He insists he is “not going anywhere”. With his febrile party no stranger to abortive coup and counter-coup, he is unlikely to be the one who has the final say.