Don’t say you weren’t warned.
Yesterday’s NFP data was only slightly warmer than consensus — 211k vs 200k — but it was enough to push the 10 year yield up to nearly 5%. That was enough to scare equity holders out of their longs, and drive the Dow down almost 100 points.
The 5% yield is obviously troublesome from a macro perspective; Higher fixed income yields attract investment dollars while simultaneously making operating costs higher for corporations.
Higher yields also pressures those consumers who have variable debt obligations — credit cards and adjustable mortgages. And you can just about forget HELOC/Cash out refis for the near future.
Let’s address a few data points that have bveen released lately that may be in need of some further explanation:
1) $16.49 is the average hourly wage for production worker, who are about ~80% of the work force. That’s a monthly gain of 0.2% (February was revised to +0.4%)
2) Hourly pay is now 3.4% than 12 months ago — that increase fails to keep up with the inflation rate
3) But Wage improvement has accelerated in 2006. Compare an annual 2.3% rate 6 months ago versus 3.7% today; The WSJ noted "it’s the first time since June 2005
that production workers saw their weekly pay rise above inflation." This explains all the recent Fed fears — and yield gains;
4) The total number of new hires reflect both organic growth and Katrina relocatees finally showing up in the data;
5) Hours worked ticked up, after sliding for a while. However, many of these hours are not paid work — they reflect (in part) non-compensated overtime; They may be less inflationary than assumed;
As you can see, NFP and the details beneath are a bit more complex than just the headline number.
Payrolls Increase at a Healthy Pace Companies’ March Hiring
Hints at Upward Pressure On Inflation and Wages
April 8, 2006; Page A3
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