Posts filed under “Federal Reserve”

NFP: Watch the Comp

Last month, we retired the Over/Under bet. The monthly and annual BLS revisions have conspired to make the initial numbers all but worthless. As an economic indicator, the monthly NFP data is wanting (Household Survey is worth even less). If we take these revisions at face value, the initial number is so unreliable by such a large factor as to be meaningless noise.

The initial BLS data’s does retain some merit, however, in that it is now a form of entertainment. Perhaps the Bureau should consider releasing the reports on YouTube.

Since we brought up these revisions, let’s review some recent payroll data revisions you may overlooked: revision to Compensation. There has been much said about the uptick in income and wages over the past few months. My pal Larry has been all over it; So too, has the White House been lauding the acceleration in compensation growth.

Such rejoicing was premature. The most recent update to the second quarter real compensation data was a dramatic downward revision.

Haver Analytics gives us the details:

"Compensation per hour, however, was revised sharply with the 3Q estimate taken down one percentage point to 2.6% growth. Combined with a huge downward revision to 2Q growth to -1.2% from +6.6% (not a typo) it lowered the y/y change to 4.3% which is on a par with the growth during the last several years.

The revisions to compensation lowered unit labor costs sharply as well to 2.3% growth last quarter. Growth during 2Q was lowered to -2.4% versus a previously estimated 5.4% gain. During the last thirty years there has been an 85% correlation between labor cost growth the growth in the GDP chain price deflator, although that correlation has fallen sharply in recent years."

Despite what you have heard, there is very little wage pressure throughout most of the system. Select, high paying jobs that require highly educated workers have wage pressure. Most of therest of the labor market does not. Kids, that’s a lesson worth learning: Don’t just stay in school, but keep adding letters after your name – Grad School is the new college.

The Fed is thought to be closely watching the comp portion of NFP closely. The chatter has been that there is a tight labor market, and wage pressures are rising. The Fed has been jawboning about inflation pressures, and has been using the wage increase as an example of why they might tighten.

It turns out this is utter nonsense. Excepting for a very specific cross section of technical jobs that there is a shortage of qualified workers for, labor remains both cheap and plentiful in the U.S. Its also apparent that Global Outsourcing has reintroduced a competitive pricing factors into the US Labor Market.

Have a gander at these charts: Labor costs remain muted, and Real Compensation is soft:

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061205bjpg

Courtesy of Haver Analytics

Real_comp
Courtesy of Professor Menzie Chinn, University of Wisconsin

 

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Bottom line: The Fed will supposedly be watching the NFP for signs of a tight labor market and economic re-acceleration. The Smart Money is waiting for a more accurate picture after the inevitable revisions.

Of course, that won’t stop the report from being market moving short term.  Traders are advised to be aware of what is to follow . . .

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UPDATE: December 8, 2006, 9:50am

Numbers are out:

Nonfarm payroll employment rose by 132,000 in November; Unemployment
Rate was essentially unchanged at 4.5 percent. Gains came primarily in services, health care and retail. Employment declined in construction and manufacturing.

Surprise! Hourly earnings growth slowed. So much for the supposedly tight labor markets.

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Sources:
U.S. Productivity Little Revised, Compensation Lowered Sharply
Tom Moeller
Haver, December 5, 2006
http://www.haver.com/COMMENT/061205a.htm

Compensation Catch-up Postponed
Menzie Chinn
Econbrowser, December 07, 2006
http://www.econbrowser.com/archives/2006/12/convergence_del.html

THE EMPLOYMENT SITUATION:  NOVEMBER 2006
Establishment DATA
BLS, Friday, December 8, 2006
http://www.bls.gov/news.release/empsit.nr0.htm

Category: Economy, Employment, Federal Reserve, Wages & Income

Is the Housing Bust Over?

Category: Economy, Federal Reserve, Real Estate

Econo-junk fix

Category: Economy, Federal Reserve

The Return of M3

Category: Data Analysis, Economy, Federal Reserve

Yield Curve Says Probable Recession

Category: Economy, Federal Reserve, Inflation, Investing, Markets

Fed Official Says Bad Data Helped Fuel Rate Cuts, Housing Speculation

Category: Data Analysis, Economy, Federal Reserve, Inflation

Why 2006 won’t be like 1995

Category: Economy, Federal Reserve, Inflation

When Does the Fed Cut With the Dow at or near Record Highs?

Category: Economy, Federal Reserve, Markets

The Return of Goldilocks?

Category: Economy, Federal Reserve, Markets

Blog Spotlight: The Mess That Greenspan Made

Today we start a new series:  Blog Spotlight.

We put together a short list of excellent but somewhat overlooked blog that deserves a greater audience. Expect to see a post from a different featured blogger here every Tuesday and Thursday evening, around 7pm.

First up in our Blogger Spotlight:  Tim Iacono and The Mess That Greenspan Made. Tim is a software engineer in his mid-forties, living in Southern California. He calls his blog is a "vain attempt to stave off a mid-life crisis, and here’s hoping that it’s going to work."

Tmtgm

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Today’s focus commentary is called Friends in High Places? and it address the controversey we discussed last week.

 

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Friends in High Places?

Life is always much more fun when there’s a good
conspiracy theory to kick around. When the New York Times starts kicking it
around too, then it can really be
enjoyable.

Such is the case with the recent plunge
in the price paid for gasoline by formerly dour consumers leading up to an
election where the party in power is clearly having difficulty wooing the
electorate. It just so happens that the newly appointed Treasury Secretary used
to run the investment bank that controls the world’s most important commodity
index, which seven weeks ago cut the weighting of unleaded gasoline by nearly 75
percent, causing all commodity investments based on this index to sell their
unleaded gasoline futures.

For the same number of buyers, a glut of
sellers means lower prices, and voila! Prices at the pump drop precipitously,
consumer confidence rebounds, and the electorate develops a new spring in their
step.

Or at least, that’s what some would have you believe. . .

Read More

Category: Blog Spotlight, Commodities, Corporate Management, Federal Reserve, Finance, Politics