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.
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:
Courtesy of Haver Analytics
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 . . .
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.
U.S. Productivity Little Revised, Compensation Lowered Sharply
Haver, December 5, 2006
Compensation Catch-up Postponed
Econbrowser, December 07, 2006
THE EMPLOYMENT SITUATION: NOVEMBER 2006
BLS, Friday, December 8, 2006
Another edition of our 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 Thursday evening,
Next up in our Blogger Spotlight: Russ Winter’s Economic & Market) Watch. A brief background: Russ was a broker for major firms in the Pacific NW for fifteen years in the late 70s and 80s. Moved on to land development, and vintage apartment ownership. He is now semi-retired and a cashed out bear, hunkered down in the Portland, Oregon area, watching the world go around.
This week’s topic: Understanding Consumer Ponzi Finance
Ponzi’ finance units must increase outstanding debt in order to meet its financial obligations.”
Credit Suisse on a monthly basis puts out one of the most data filled reports in the biz on mortgage and consumer finance. A careful reading of the latest issue, enables one to piece together the nature of the American asset Bubble consumer financing Ponzi scheme. A look at the following chart on housing cash out refinancings, clearly illustrates Joe Soccer Mom’s (JSM) largely unrestrained ability (so far), to effectively service their old debts and continue spending, with new debt. That’s true even with the kind of extremely low levels of cash in the bank, that I pointed out in my blog on demand deposits, earlier this week.
Category: Blog Spotlight
• Hickey points out another fallacy with the 1995 market meltup and 2006-07. Eleven years ago, the Republican Revolution ushered in lower tax rates on income, capital gains, dividends and estate taxes. By contrast, the Democratic tsunami in the YouTube Election of 2006 should be worrisome to corporate executives, bankers, consumers and investors. Instead, they are partying like it was 1995 and oblivious to what is happening on Main Street and, importantly, in Washington.
• The collapse in housing is spilling over and has begun to impact the general economy. Hickey highlights many of our concerns — the durable goods drop, rising subprime mortgage delinquencies and property foreclosures, a steep contraction in truck tonnage, a surprising decline in the Institute for Supply Management’s manufacturing index and reports (Lazard Capital Markets) that 60% of retailers missed their November same-store estimates.
• As the limited quantities of special deals were gone, retail spending came to a halt after consumers were baited with "doorbuster" deals on Black Friday. At every store he visited after Thanksgiving weekend, Hickey found empty stores and excess inventory. Circuit City (CC) was swimming in iPod inventory ("the new toasters") and at mobile phone stores (Hickey smells an emerging glut) it was the same story with Cingular awash in the new Blackjacks from Samsung, Verizon (VZ) with a plethora of "Qs" from Motorola (MOT) and T-Mobile with xcess Blackberry Pearls.