How Good Was NFP Really?

Saturday, July 07, 2007 | 06:55 AM

Whoever wrote the headline for today's WSJ is our latest nominee for Peyote spokesman of the month. I don't know gets the blame for this Saturday morning front page headline:  Strong Jobs Data Signal Economy Is Gaining Steam -- but someone needs a schoolin'.

"Employers outside agriculture added 132,000 people to their payrolls in June, and tallies for the previous two months were revised upward, the Labor Department said Friday. Unemployment remained a low 4.5%.

The report suggests the economy is healthy enough to further diminish the chances that the Federal Reserve will cut interest rates in the next few months, and investors Friday pared back those odds. At the same time, the report cast doubt on the possibility that the job market is so tight it is fueling inflationary wage gains.

In short, the U.S. economy seems to be enjoying a Goldilocks moment -- not too hot, not too cold -- after a few quarters of subpar growth and a few flickers of uncomfortably high inflation that conjured images of the 1970s."

Meanwhile, other MSM were a tad more circumspect. The Times noted "Jobs Report Finds Growth Still Moderate" noting the warts:

"The job market looked much like the economy as a whole last month: subdued but strong enough . . . Amid its signs of strength, however, the job market showed several pockets of weakness. Hiring, for example, was concentrated in just a handful of sectors . . .

But there are questions about whether the Labor Department’s numbers are capturing the full employment picture. Many economists have been puzzled at how strong some of the numbers are despite the clear signs of an economic slowdown. Construction employment, for example, has not registered the types of declines that would be expected during a housing recession. (Last month, it grew by 12,000.) And some sectors, like health care and hospitality, seem unusually strong."

CNN/Money was also somewhat circumspect:

"The report seemed to contain some contradictions about the job market and various sectors of the economy.

Retailers trimmed 24,000 jobs, for example, despite generally strong June sales reported by major store chains. And there was a gain of 12,000 jobs in construction despite the weakness in the home building market as non-residential construction payrolls grew, while employment in residential construction was flat.

But not everyone was so sure Friday's report means the job market is immune to the weak housing market."

Away from the MSM, the Econocator had a good round up of all the NFP commentary: The fishy payrolls report.

I have a number of issues with the NFP report, all of which we have thoroughly thrashed in these pages: Thew abnormally high Birth/Death adjustment (about a rthird of the monthly net gains); the lack of wage pressure, despite full capacity utilization; the ongoing gains in Construction.

Let's take another look at the lack of Wage pressure. Consider the following chart from EPI:  It actually shows nominal wage gains decelerating as Unemployment rate falls.
>

20070706jobs

Chart courtesy of EPI

>

Weak job growth, anemic wage gains, and sub-par performance compared with other regions --even Europe -- that's, according to today's WSJ, Goldilocks? I have to go back and reread then fable, as perhaps my memory is less sharp than I realize . . .





Sources:
Strong Jobs Data Signal Economy Is Gaining Steam
Fed Is Wary of Inflation Despite Wage Restraint; A 'Goldilocks' Moment
BRIAN BLACKSTONE and GREG IP
WSJ, July 7, 2007
http://online.wsj.com/article/SB118372369249959192.html

Jobs Report Finds Growth Still Moderate
JEREMY W. PETERS
NYT, July 7, 2007
http://www.nytimes.com/2007/07/07/business/07econ.html

Job growth tops forecasts
Chris Isidore
CNNMoney.com, July 6 2007: 10:15 AM EDT
http://money.cnn.com/2007/07/06/news/economy/
jobs_june/index.htm?postversion=2007070610

Moderate top-line growth masks underlying weakness
Jared Bernstein
EPI, July 6, 2007
http://www.epi.org/content.cfm/webfeatures_econindicators_jobspict_20070706

Saturday, July 07, 2007 | 06:55 AM | Permalink | Comments (16) | TrackBack (0)
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Comments

The WSJ article raises a series of interesting questions?

1. What is the root cause of inflation?

2. Is it demand for higher wages by workers?

3. Is it rising commodity prices?

4. Is it the fiat money?

5. Are spendthrift politicians involved in the process?

Posted by: Werner Merthens | Jul 7, 2007 9:19:08 AM

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