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Payroll improvement: 1000 Jobs

Posted By Barry Ritholtz On January 9, 2004 @ 9:49 am In Finance | Comments Disabled

Yes, you read that right: The mighty American economy created no new jobs in December. The actual number — 1,000 — is essentially a rounding error.

To be fair, the December data is tough to tease out, given seasonal aberrations. But this data point is consistent with the position we have long held: This is a stimulus driven economy, not a normal business cycle recovery. Hence, job growth remains anemic.

payroll_employment.gif
Chart Courtesy of Brian Reynolds, M.S. Howells [1]

Expect the Treasuries to rally off the stunningly low December nonfarm payrolls data. Market was expecting a 181K gain in payrolls. That’s two months in a row now with essentially stunning numbers.

The Labor Department Data is here [2]

Josh Shapiro, Chief U.S. Economist for MFR, is someone who’s opinion I respect, despite the fact we frequently disagree on such matters. Josh noted:

“A report that was much weaker than expected in every important way . . . This report will feed the Fed’s belief that the economy retains significant slack and that there is no urgency to tighten monetary policy in spite of rapid real GDP growth. . .

With support for consumer spending growth from mortgage refinancing and tax cuts fading, the consumer is going to need to see stronger wage and salary growth in order to sustain the type of consumption gains that will be necessary to deliver the overall economic growth that is widely expected for 2004. It is critical, therefore, that the recent turnaround in payroll changes into positive territory prove to a precursor of still better things to come rather than a flash-in-the-pan. We believe that job creation will be sustained and will gain momentum over time as increasingly profitable businesses are forced to hire in order to fulfill demand. This is the stuff of a self-sustaining economic recovery, which is what lies ahead in 2004 after the immediate boost to growth from the incipient inventory cycle…

It is clear that increased manufacturing output is being satisfied by existing workers being utilized more intensively, which is good for productivity and profits in the manufacturing sector, if not for unemployed factory workers. However, manufacturers are getting to the point where their existing workforce is becoming too stretched, and at some stage in the not too distant future we are likely to see modest net hiring in this sector of the economy.”

I believe that the present economy is unique in history, and because of that, its peculiarly difficult for practioners of the dismal science to forecast.

This is not a normal cycle — contraction, consumer spending slow down, recession, stimulus, recovery.

Instead, its been: longer than usual economic expansion, leading to a bubble, enormous wealth creation, burst bubble, market collapse, no consumer spending slow down, business contraction, historic levels of stimulus, market reinflation.

How do you game something like this? It’s times like these that make me glad I’m a law school educated strategist, rather than an MBA educated economist!


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URL to article: http://www.ritholtz.com/blog/2004/01/payroll-improvement-1000-jobs/

URLs in this post:

[1] Brian Reynolds, M.S. Howells: http://www.mshowells.com/independant_research/independant_research_index.php

[2] here: http://stats.bls.gov/news.release/pdf/empsit.pdf

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