Tuesday, April 10, 2007
a momentary reprieve?
Overall this is a solid report. With the revisions to prior months, the economy has added 152K net jobs per month for the last three months. The expected job losses in residential construction employment still haven't happened, and any spillover to retail isn't apparent yet. With housing starts off over 30%, and residential construction employment off less than 4%, I expect the rate of residential construction job losses to increase over the next few months.
the number apparently has some confirming depth as well. housing is continuing to crash and construction employment will go with it, but the retail jobs picture is a bright spot, as least in this singular data tick. one can make the argument that retail is unimpressive or even flat, and that it is a lagging indicator, or even that the data has been fabricated -- but consumer-led recession is going to see outright weakness here, and there is none apparent just now.
however, those criticisms are still valid -- employment growth rate is decelerating just as corporate profits and capital expenditures are decelerating. and employment is lagging, as noted by deutshe bank (via econobrowser):
"Labor is last to go. Weakening profits against the backdrop of rapidly decelerating capex will eventually hurt hiring because profit margins will come under pressure. This is what happens in every cycle, only the timing and size of the adjustments vary. In the late 1990s, it took several years before slowing profits led to slowing employment, because capex remained strong as many companies imprudently over-expanded their capital infrastructure, e.g. telecom. When capex peaked in Q4 2000, it did not take long for the unemployment rate to rise and for payrolls to decline. The former began rising in Q1 2001 (from only 3.9%), while payrolls turned negative the following quarter. At that point the economy was already in trouble, forcing the Fed to ease aggressively. Often the labor market is the last sector to falter, and if the Fed waits to see this before acting, downward momentum could be substantial at that point."
mainstream outlets have seized on the report as evidence of clear sailing ahead, but this is more problematic a prediction at this point than usually. the recency effect noted by big picture should not cloud the fact that conditions are worsening -- noting particularly continuing contraction in manufacturing and the first loss of payrolls in professional services.
the joy with which the march non-farm payroll report has been broadcast adds some credence to bill cara's notion that this is a final leg in the markets -- one in which big players are getting their ducks in a row before finally allowing the bull to expire -- as one of the ways in which they can do so is to use their media force to ram positivity into the unsophisticated investor pool, sending them into buy what the major houses are trying to offload.
i was particularly amazed to tune into cnbc this morning -- that most obscene of all the wall street trumpets -- to check the premarket futures, only to be assailed by an ubiquitous "time to buy" animated graphic, followed by an interview with real estate shill david lereah. (in this clip, ken heebner must disappoint cnbc something furious, essentially telling the audience that both housing and the economy in the united states will continue to struggle.) if the humongous banks and brokers have turned to something so transparent, i would wager that they are deeply concerned.