Brace Yourself: Its NFP Day!

There seems to be some buzz about this month’s NFP Job Data building — although new unemployment claims came in the same as last month (315k), and the ADP report was essentially unchanged.

I’m watching 3 data points for insight into the monthly numbers: Retail sales, GDP, and (of course) Housing.

For most of this post recession recovery, Housing was a large net job creator. From Mortgage brokers to Contractors, Home Depot and Lowes to Real Estate Agents, Housing was a huge source of new job creation. Real residential investment fell in Q2 at an annualized rate of -9.8%. We’ve seen Housing turn into a net Jobs negative.

Retail is a mixed picture at best: We’ve seen some good numbers from some stores thanks to a late August shopping surge — Wal-Mart was strong, Target was fair, CostCo poor. These cracks imply the consumer is growing tired; Not yet Shopped Out — but getting there. CNN Money noted that generally, Retailers back-to-school sales were mediocre. August retail followed a poor June but a strong July.  The WSJ took the analysis a step further with a page 2 story Mixed Retail Results Breed Unease:

•  Tax holidays and summer clearances helped to drive retail traffic.

• Consumers made purchases closer to the start of school year.

• Parents were more cautious about spending, focusing on shopping-list essentials and bypassing discretionary items.

Bottom line is that retail is not likely to be a big net add.

The last part of our unholy trinity is the GDP revisions up to 2.9% from 2.5%. As is so often the case, you need to delve beneath the headline figure. The revised Q2 figures are not nearly as robust as the headline data implies. Nouriel Roubini notes that "almost all of the upward revision to the figures comes from a much larger increase in inventories of unsold goods, an ominous signal for future growth as firms saddled with unsold goods will soon start cutting production (as it is happening, for example in the auto sector). Indeed, if you exclude inventories and look at final sales, the figures are much worse: in Q2 final sales of domestic product grew only 2.3%."

The other element to be wary of is the import/export data. If the ratio improves due to the U.S. exporting more goods, that is a net positive. More manufacturing/service providing means the economy is in fact expanding. However, this month’s revision had the ratio change due to a decrease in net imports. That reflects a slowing in import consumption by U.S. consumers. 

Indeed, the unexplained drop in CPI due to apparel prices the past few months reflects a similar situation. Clothing prices didn’t suddenly drop due to a reversal in inflation — they were discounted to stimulate sagging sales.

A sharp increase in inventories is also worrisome. Any increase in the supply of unsold goods at this late stage of the business cycle should be looked at as a leading indicator of future production slow downs. As demand slows, and inventories rise, it bodes poorly for the business side of the economy.

Bottom line: Consensus is 130k — I’ll stick with the "Under."


Mixed Retail Results Breed Unease
Teen Chains’ Sales Increase But Gap, Penney Struggle;
U.S. Spending Data Rise

September 1, 2006; Page A2

Revised Q2 GDP Figures: Much Worse Than the Headline…
Nouriel Roubini
RGE | Aug 30, 2006

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