The Big Picture

Looking more closely at NFP data

Friday, May 05, 2006 | 10:18 AM

Well, the markets liked it.

NFP's soft number 138k number for April -- and the 36,000 downward revisions for the prior two months -- heartened equity and bond holders alike, as both asset classes rallied.

Focusing on the hope the Fed might stop sooner -- rather than why they would -- is a short sighted habit of wishful thinking by investors.

Quite bluntly, we simply do not see the Goldilocks scenario -- strong GDP, modest employment improvement, well contained inflation -- as supported by the data. Our read of the strong Q1 GDP and Durable Goods data was a result of a horrific Q4 2005, following the disruption of Katrina and Rita. Rather than taking the hot Q1 numbers as proof of strength, we interpret this as little more than Q4 activity getting pushed forward. Concurrent with that, we read the weak hiring data as a sign that higher fuel prices and increasing interest rates are beginning to take a toll. Further, it appears we are on the verge of feeling the impact of the cooling housing market.

Additionally, for those who wish to obsess over what the Fed's next move is, consider the underlying data as more mixed than benign. Average hourly earnings up 3.8% (annually), hours worked rose incrementally. We know the Fed tracks wage push and labor utilization closely. Barring proof of a significant slowdown, we expect at least 2 more increases from the FOMC.

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Comments

The 0.4% gain in hours worked is in line with where it has been for the last couple of years. But the 0.8% gain in average weekly earnings was the largely increase since 1996. Wages and salaries are accelerating significantly.

Posted by: spencer | May 5, 2006 11:27:08 AM

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