	Generational Dynamics
	Forecasting America's Destiny ... and the World's

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Generational Dynamics Web Log for 4-Jan-07
ADP Employment Report indicates abrupt fall in employment

Web Log - January, 2007

ADP Employment Report indicates abrupt fall in employment

This differs sharply from mainstream economist projections.

The nation lost 40,000 nonfarm jobs in December, according to the ADP National Employment Report.

Typically, this index shows a gain of 50,000 to 200,000 jobs per month. This was the first time that a loss of jobs was indicated since 2003. An abrupt turnaround to a substantial loss could be the first signal of a fairly substantial recession.

The official government jobs report from the Bureau of Labor Statistics (BLS) will be available this Friday, when the monthly employment report is published. If the BLS report also comes in negative, a lot of mainstream economists will be surprised, since they're expecting a gain of 150,000 jobs in December. Like the ADP figure, the BLS figure has not been negative since 2003.

The official BLS figure is computed each month through a government survey of hundreds of thousands of employers.

The ADP National Employment Report is computed each month from data collected by ADP Employer Services, which provides payroll services to 500,000 U.S. businesses. This data is made available to the private forecasting firm, Macroeconomic Advisers, which aggregates the data and publishes its monthly report a few days ahead of the BLS report.

The ADP report has fairly accurately predicted the BLS report for several years, but not always. The following graph compares the two:

ADP National Employment Report versus BLS Government Report -- historical comparison

ADP National Employment Report versus BLS Government Report -- historical comparison

The above graph shows both the ADP numbers (red stars) and the BLS numbers (blue circles) back to January, 2001. (The other two symbols represent sums that aren't of interest to us today.)

The graph shows that the ADP figures correctly predict the BLS figures pretty closely most of the time, and differences mostly cancel each other out over a period of several months. However, there are individual months where the two are diverge widely.

Thus, it's possible that the ADP figures are simply wrong this time. In fact, there's a greater chance of this than usual, due to the fact that December employment figures are very hard to gather accurately, since holiday seasonal employment can easily skew the results.

The December BLS figures will be released on Friday. If the BLS figures come in negative, and they're sustained in the next month or two, then it means we're at beginning a hard recession, which many (though not all) mainstream economists have been predicting anyway.

Generational Dynamics predicts that we're entering a 1930s style Great Depression that will begin with a generational panic and stock market crash.

Major international financial panics have occurred throughout history at regular 70-80 year intervals. The major financial crises since the 1600s have been identified as follows: Tulipomania bubble (1637), South Sea Bubble (1721), French Monarchy bankruptcy (1789), Hamburg Crisis of 1857 (Panic of 1857), and 1929 Wall Street crash.

At the present time, the stock market is overpriced by a factor of over 240%, and with price/earnings ratios around 20 or higher since 1995, a panic is long overdue. Such a panic is expected to lead to a fall to the Dow 3000 range, with the price/earnings ratio index falling well below 10. Note that the P/E ratio index has fallen below 10 several times in the 20th century, most recently in 1982, so this is a common occurrence. The exact timing cannot be predicted; it might occur next week, next month, next year or thereafter, but with global imbalances increasing so quickly, the chances that it will happen sooner rather than later.

The stock market has been experiencing an enormous bubble, propelled by hundreds of trillions of dollars (market price) of overpriced hedge funds, with no intrinsic value beyond the market price of other overpriced hedge funds. The largest single component of these hedge funds is the "financial derivatives" component. Financial derivatives provide a kind of insurance against loan defaults, and are being hugely overused by financial institutions who are willing to take any amount of risk to make money, believing that the financial derivatives will protect them. A hard recession in the American economy could be the trigger for panic selling that will lead to the generational panic described above. (4-Jan-07) Permanent Link
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Generational Dynamics Web Log for 4-Jan-07 ADP Employment Report indicates abrupt fall in employment

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Generational Dynamics Web Log for 4-Jan-07
ADP Employment Report indicates abrupt fall in employment