The Poor Turnips.
As central bankers and energy traders around the world await today's jobs report, employers are wondering just how much blood you can squeeze out of a turnip.
The turnips are getting major league squeezed as third quarter productivity surged to an annual rate of 9.5%. That follows the second quarters' 6.9% rise which was the biggest back to back increase since 1961! And you can't credit Windows Seven for this as it was not yet released. Anyone else go bats watching that stupid circular thingy go around on Windows Vista? No, this was the American workforce getting pushed about as hard as you can push them and by employers slicing and dicing every place that they possibly can. Who is counting the staples? Well someone is as unit labor costs a measure of what it costs firms to pay workers for a single unit of output they produce fell by a whopping a 5.2% annual rate. What, are they copying on both sides of the paper? That is down 3.6% from a year ago which they say is the biggest year over year drop since the Labor Department began keeping records in 1945.
The good side of this is that if productivity is that good inflation should remain lower than it might have otherwise. Which means central bankers can have more confidence keeping the pedal to the metal with this entire fiscal stimulus keeping the carry trade alive. Yet what may be more significant about this incredible number is that it may mean that the number of unemployed workers that we see in today's jobs report may be the peak of the recession.
That's right. This could be it. This number may mean the recession really is over. Surges in productivity like we have seen are usually a precursor to a bout of hiring. The productivity numbers followed by strong manufacturing data and large factory orders seems to suggest that this jobs number may not be quite as bad as some people think and even if it is, this may be as bad as it gets. So when you put in that 13 hour day today doing the job of three people there is a possibility that help may soon be on the way as your employer might start to think he is in the clear to hire some extra help.
Of course for oil this is very bullish news. If the economy is improving we should see demand improve. If Inflation stays low then the carry trade can continue to get this market carried away. The truth is that if these numbers are just masking inflationary pressure, in the short run the final break in oil will be much harder when the carry trade comes crumbling down. It will eventually happen but with strong productivity numbers like this it probably won't be today. That is unless of course we get a major upside surprise on the jobs report.
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Buy December crude at 7727 - stop 7500.
Buy December RBOB at 19000 - stop 18800.
Buy December heating oil at 19700 - stop 19500.
Stopped on long December natural gas from apprx 510 at apprx 470.
Senior Market Analyst