Forget April Fools' Day: Next Week's Data is No Joke

Next Tuesday may be April Fools' Day, but the data due out during the week will be no joke--especially if it’s as bad as expected.

There will be two key points for the week: Wednesday’s Congressional testimony by Federal Reserve Chairman Ben Bernanke before the Joint Economic Committee and the first labor report of the month released Friday. Both events are highly predictable.

Bernanke’s testimony will likely echo the Fedspeak remarks we’ve heard in the two weeks since the Federal Open Market Committee’s March 18 meeting. This was the meeting at which the Fed further reduced the target Fed Funds rate (the interest rate banks charge each other for overnight loans used to maintain required reserves) to the lowest level since December 2004 -- when rates were on the way up.

The Federal Reserve hasn’t exactly been idling since then. It engineered the acquisition of threatened investment banking firm Bear Stearns by commercial banking giant JPMorgan Chase and then added new arrows to its quiver in its uphill struggle to contain damage in the financial services sector from the mortgage meltdown.

Bernanke’s testimony comes against the backdrop of a new survey by the Pew Research Center, which found Americans have grown steadily more negative about the national economy over the past three months. According to the survey, only 11% of the public views the economy as "excellent" or "good," compared with 17% in early February, and 26% in January. The survey's results show people's view of  the economy is at lows it saw during the recession of the early 1990s. "In August 1993, 10% of Americans rated the economy as excellent or good in a Gallup survey,” the survey found.

However, Bernanke might be able to bask in anonymity. According to the survey, most Americans don't know who he is: 56% say they have not heard of him or do not know enough about him to offer an opinion. Those who are familiar enough with Bernanke to offer an opinion of him are divided: about a quarter (24%) hold a favorable, while 20% offer an unfavorable rating.

Bernanke did somewhat better with those who know about recent investment bank problems. Among those who know a lot about the situation, 37% rated him favorably and 40% did not offer an opinion.

If Bernanke slinks in under the radar, Friday’s employment report won’t. The headline numbers such as the unemployment rate and the change in payroll jobs will, by definition, draw the most attention -- but the report also contains nuggets suggesting the future direction of the economy.

Joel Naroff, chief economist at Commerce Bank, suggested one nugget could come from the diffusion index in the employment report. The index, Naroff said, shows how broadly-based the changes in jobs are and reflects the breadth of employment. The index--on the last page of the report --is a series of tables noting the percentage of industries that have increased their payrolls in the last month, three months, six months and the last twelve months. Looking at the percentage changes at different time frames provides insight about trends in layoffs and hiring generally and, since there are two sets of indexes-- manufacturing and all private sector payrolls--how widespread the changes are.

Another under-the-radar number, according to David Resler, chief economist at Nomura, is the labor force participation rate. Resler noted the unemployment rate improved in February even though job creation was negative for the second month in a row because the labor force--the sum of individuals employed and unemployed (only those actively looking for work are considered “unemployed”) -- declined.

Confused by this? Here's a simple example. Imagine there were only 11 people over the age of 16 (which is the age cut-off used by the Bureau of Labor Statistics in developing its employment report). Of the 11, two are unemployed and nine are employed, producing an unemployment rate of 18%, or two divided by 11. As the labor market weakens, one of the two who had been unemployed stops looking, reducing the labor force to 10. The unemployment rate would be cut to 10%, or one divided by ten.

The composition of the labor force too, Resler suggested, could offer glimpses into the future. He suggested the weakening labor market could push older workers into retirement, with the composition force changing.

We’ll see Friday.