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How Good Was NFP Really?

Posted By Barry Ritholtz On July 7, 2007 @ 6:55 am In Data Analysis,Economy,Employment,Wages & Income | Comments Disabled

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 [1] — 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 [2]" 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 [3] 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 [4] had a good round up of all the NFP commentary: The fishy payrolls report [5].

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 [6]

Chart courtesy of EPI [7]


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 . . .

Strong Jobs Data Signal Economy Is Gaining Steam [1]
Fed Is Wary of Inflation Despite Wage Restraint; A ‘Goldilocks’ Moment
WSJ, July 7, 2007

Jobs Report Finds Growth Still Moderate [2]
NYT, July 7, 2007

Job growth tops forecasts [3]
Chris Isidore
CNNMoney.com, July 6 2007: 10:15 AM EDT

Moderate top-line growth masks underlying weakness [7]
Jared Bernstein
EPI, July 6, 2007


Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2007/07/how-good-was-nfp-really/

URLs in this post:

[1] Strong Jobs Data Signal Economy Is Gaining Steam: http://online.wsj.com/article/SB118372369249959192.html

[2] Jobs Report Finds Growth Still Moderate: http://www.nytimes.com/2007/07/07/business/07econ.html

[3] CNN/Money: http://money.cnn.com/2007/07/06/news/economy/jobs_june/index.htm?postversion=2007070610

[4] Econocator: http://www.econocator.com/

[5] The fishy payrolls report: http://www.econocator.com/2007/07/07/us-economic-indicators/the-fishy-payrolls-report/

[6] Image: http://bigpicture.typepad.com/.shared/image.html?/photos/uncategorized/2007/07/07/20070706jobs.gif

[7] EPI: http://www.epi.org/content.cfm/webfeatures_econindicators_jobspict_20070706

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