"The Miss" Hit The Fed in the Jawbone -- WSJ

Except for the Korean Missile Crisis, and that story seems to be getting little attention in south Texas, the biggest story of the week, without question, is "The Miss."

Week in and week out, I am surprised how analysts' forecasts are off the mark.

But "The Miss" this week was spectacular. I think there has been only one forecast that was as big a miss: Peggy Noonan projecting Mitt Romney to take the election in an editorial published the Saturday before the Tuesday election.

"The Miss" this week: the analysts' forecast for number of new jobs created in the US. The published, posted, official, forecast was for 200,000 jobs. That was not a good number, down from previous highs, but it was what it was. A forecast for 200,000. As Friday drew near(er) there were whispers that the number might come in as low as 150,000 but to the best of my knowledge no mainstream media outlet quoted a source for 150,000. Everyone was holding to 200,000.

In fact, some analysts' even held out hope for a number better than 200,000. Remember Chris?

"The tone in markets could change if we get a positive surprise, but the data we've seen leading up to this has people expecting fewer job gains than we've been seeing," said Chris Bertelsen. 

Yes, Chris said the data suggested fewer job gains than "we" had been seeing, but he was unable to say the unsayable; in fact, he was holding out hope for a "positive surprise."

The first clues came earlier in the week, on Wednesday and Thursday, that the numbers would not be good. The day before should have prepared everyone for the debacle that would be reported twenty-four hours later. The headline from an excellent, reliable source on Thursday:

Jobless Numbers: Spike To Four-Month High; 

Huge Spike; Up 28,000; Horrendous

 

That was Thursday, a full twenty-four heads ahead of the debacle, and yet no one lowered their forecasts.

That would be the end of the story except now we learn that Friday's numbers caught "the Fed" completely by surprise. We had a hint of that earlier in the week when at least one regional Fed president was either a) under the Geico rock; or, b) on a different planet. He said that the Fed, with continued good news on the economy, could start thinking of tightening. At least that's how I interpreted his comments.

I don't think my interpretation was far off. In today's WSJ, "Heard on the Street," this stunner:

Jobs Report Hits Fed in the Jawbone.

Justin Lahart writes:

The three Fed presidents were essentially laying the groundwork of preparing financial-market participants for the Fed's eventual withdrawal of support. The speeches naturally came with caveats galore, and Friday's jobs report just delivered a big one. Talk of the Fed tapering off asset purchases will probably taper off now.

And what if the March jobs weakness turns out to be just a blip? Then the Fed will face a tough choice: It can make a more abrupt move toward winding down its Treasury and mortgage purchases, and risk unsettling markets. Or it can delay in order to better prepare markets, moving later than it would prefer.

Regardless of what's really going on in the labor market, this wasn't the jobs report the Fed wanted.

The argument is whether this is a blip or a trend. Lahart suggests why it simply might be a blip.

But earlier in today's WSJ, there was another, more ominous explanation why this might not be a blip.

Sudeep Reddy writes that the payroll-tax rise, not the sequester, was the reason for the jobless report.

The timing certainly fits. If accurate, one of two things will happen, all things remaining equal:

• the payroll-tax rise will continue to impact consumers and continue to affect jobs, particularly in retail
• folks will get used to the payroll-tax rise, adjust, and jobs will come back, particularly in retail

Of course, things will not remain equal. The next blow to the consumer, particularly to the consumers who live paycheck to paycheck and pay in cash, will be the price of gasoline. In a month or so, we enter the driving season. With the driving season generally comes a rise in the price of gasoline. It is possible the price of gasoline will drop this summer. But the tea leaves do not leave me optimistic.

The price of oil plummeted this week, but still held above $90, and in fact, the price for WTI, I believe, rose above its lowest level of the day Friday and recovered above $93. That comes on top of a) a horrendous job report; and, b) a slight gasoline supply imbalance.

Slight gasoline supply imbalance? Slight? Gasoline inventories are at a 22-year high.

The U.S. Energy Department's weekly inventory release showed that crude stockpiles jumped to hit their highest level since 1990. However, the report further revealed that refined product inventories – gasoline and distillate – declined from their previous week levels. Meanwhile, refiners scaled up their utilization rates by 0.6%.

So, where has this rambling led us?  As I started out, "The Miss" this past week is the biggest story of the week. How the Fed did nnot seen this coming is beyond me. They must have a lot more data to analyze than the rest of us. Twenty-four hours before "The Miss" the writing seemed to be on the wall.

Again, hindsight is 20-20. But even the WSJ noted that "The Miss" hit the Fed in the jawbone.