Schork Oil Outlook: Why Crude Is Yawning

We place our “bias” as neutral because the recovery has not been derailed and people did find jobs, but several key figures are deceiving.

The talking heads were celebrating a recovery in manufacturing jobs, which rose for the first time since January 2007. But manufacturing jobs have very little correlation with the rest of the economy, in fact the correlation co-efficient between manufacturing payrolls and total payrolls is a negative (0.69), i.e., growing total jobs lead to decreasing manufacturing jobs. With that in mind, January 2009 saw manufacturing jobs rise 0.11 m from 11.53 m to 11.54 m.

But here at The Schork Report we are scratching our heads: the US lost 2.47 million jobs in the last two years and a 0.11 million increase is considered a recovery? Consider instead that since January 1970, the manufacturing sector has been declining at an average rate of 1.1% every year, or a loss of roughly 0.17 million jobs. So if the long term trend continues, these jobs and more will be wiped out within a year.

That’s not bullish.

A similar picture plays out for the oil and gas extraction industry. The large shales and sands fields which have recently become economically feasible are supposed to lead to a boom in the natural gas industry, but in reality these firms are laying off employees. Workers in oil and gas extraction fared the recession well, with jobs rising from 0.147 million in September 2007 to a peak of 0.167 in December 2008. Since then jobs have fallen to 0.160. One of the supposedly most promising industries in the country has been laying off workers instead of hiring them?

That’s not bullish.

Most readers will have noticed that the non-farm payrolls data showed a 20,000 loss of jobs for January, but the unemployment rate fell below 10% to 9.7%, its lowest value since August.

That seems like a contradiction, but the figures come from two different data collection methods: the payrolls data comes from employers being surveyed, the unemployment rate reaches out to households.

Anecdotally, the households survey reported a recovery because it picks up on smaller jobs which are not yet being reported by employers. For instance, the largest decline in the unemployment rate came from the 16-19 year old age group. The last time we checked, 16-19 year olds were driving the economy for Facebook and Transformers 2’s box office receipts higher, but not much else.

Households are also more likely to report smaller startups, which are riskier than established businesses. According to data for the years 2004-2008, the United States Small Business Administration (SBA) reports that over 30% of these firms fail within two years. Given the shaky economic situation and uncertainty about interest rates, that percentage may be even higher. Traditionally the employer and household surveys trend to track together, so we believe it likely that the unemployment rate will rise in the coming months.

That’s not bullish.

Outside the number of jobs, the statistics are equally mixed. Workers are working more and getting paid more — the average hourly work week rose by 6 minutes to 33.9 hours and the average weekly paycheck rose by $1.36 to $761.06. Unfortunately, the average duration of unemployment hit an all time high of 30.2 weeks, a stark increase from 19.9 weeks in January 2009. This means that the 20,000 workers who were laid off in January will remain unemployed (i.e., with drastically reduced spending power) until September.

That’s not bullish.

The bottom line is that we do not doubt that some people found jobs in January. But given how many jobs we’ve lost over the recession (there are 14.8 million unemployed Americans) we’re going to need a shockingly large, incredibly positive payrolls number before analysts at The Schork Report start feeling bullish again.

As the so-called “jobless recovery” has shown, bad news for the American people does not translate to bad news for American firms, however. Last week, the U.S. Census Bureau reported its second consecutive month of better-than-expected factory order numbers. Manufacturers’ new orders grew at a month-on-month rate of 1%, almost double analyst expectations of 0.5%.

On the breakdown several core industries put in a strong performance. New orders of primary metals saw an 8.1% increase from November, compared to the 2.4% growth from October to November. That brings the December average to $16.4 billion, still 9.1% below the 2003-07 timestep, but 16.9% above December 2008. Compare that to metals orders in September, which were 27% below September 2008.

We expect this strength to carry forwards towards the industrial production and capacity utilization figures.


Stephen Schork is the Editor of, "The Schork Report"and has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.