In a recent interview with Barron’s, Danske Bank CEO Thomas Christian Hesse explained that the investment bank is unfazed by comments from the Federal Reserve regarding employment numbers. Hesse explained that Danske’s employment reports are based on customer relationship management and have no impact on the bank’s bank balance sheet.
“We’re happy with our earnings. We believe we have an undervalued stock,” Hesse said, according to a Barron’s report. “We believe our performance is good,” Hesse said.
“We believe the U.S. economy is performing better than other economies are and we’re going to continue to watch,” Hesse said. “We’re pretty happy with where we are in this kind of environment and the number is not causing us to think that things are going to be substantially different next quarter,” Hesse said.
I’m also pretty comfortable with what Hesse told Barron’s. Indeed, I said similar things several months ago about the behavior of the U.S. economic data.
Yet, is it fair to expect the banks to maintain their stability despite these comments by the bank’s CEO? If the banks keep making profits while the economy suffers, it doesn’t seem likely that the Fed will do anything other than increase their balance sheet.
Indeed, the unemployment rate has been declining for over three years. Yet, it is the same old pattern.
It seems odd that the daily data are not sufficient to influence the Federal Open Market Committee (FOMC) to intervene in the markets by raising interest rates. They would obviously like to. But the banks are not able to affect the direction of monetary policy on their own.
This is why Bank of America is now saying that their employment data is not going to influence the FOMC. This is why Goldman Sachs is saying that it doesn’t matter whether the jobless number was positive or negative. Indeed, the Fed will determine its path of action based on whatever the banks say.
In fact, according to the Federal Reserve, the AER, or Employment Situation Report, which is a component of the monthly earnings report is of little or no effect on the Fed’s policy decisions. As an example, it cited “Q2 GDP (purchasing managers’ index) data as an important indicator of economic activity and is used to adjust regional unemployment rates.”
However, none of these statements seems unimportant. In fact, I’d say that it shows the banking community are completely clueless when it comes to economic events. I wrote a book about that subject in the early 1990s called “How Interest Rates Can Be Made to Move Against the Will of Central Banks.”
The period employment report provides the latest employment statistics. In addition, there are two other ways to obtain the data: the Bureau of Labor Statistics Employment Situation Report, which is a monthly report; and the Quarterly National Household Survey, which is conducted every three months and is the source of quarterly employment figures.
This pattern repeats itself every six months. We can only hope that the real time data provided by the BLS starts making a difference. By the way, the NAHB has more information on payroll jobs.