Weak Employment Numbers from the Department of Labor
Sectoral Rotation in December
By blackhedd Posted in Economy | Interest rates | unemployment — Comments (14) / Email this page » / Leave a comment »
A much-anticipated report from the Labor Department's Bureau of Labor Statistics (BLS) shows that employment in the US added 18,000 new jobs last month. This was far less than the consensus estimate of private economists surveyed by news organizations.
The markets have been waiting for this report for several weeks, as the usual holiday-season paucity of news and trading activity gave them little else to focus on. But the news comes as a slug in the gut. It touched off an instantaneous, rocket-propelled rally in the US Treasury market. As I write this (9:10am EST), the 10-year note is up 14/32, and its yield is down to 3.84%.
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I think the Labor Department should stop publishing the employment rate, which I won't bother quoting to you, for two reasons. First, you'll hear it everywhere today anyway, and second, it's a near-meaningless number in economic terms.
What they do publish that is actually interesting, is the job-performance of various sectors of the economy. (Keep in mind throughout this discussion that the December report is a first look, and will be revised twice in the next few months. In recent months, the revisions have all been to the upside, which may or may not mean anything.)
Manufacturing and construction businesses (what BLS calls "goods-producing") subtracted 75,000 jobs in December, while services businesses added 93,000.
The service sector is by far the largest part of the economy, and includes professionals, educators, the hospitality business, and (notably) governments. All of these had sharp employment growth. Retail trade got slugged hard, but that may be a normal seasonal effect.
The disappointing performance in service-sector employment is one of the clearest signs yet that the US economy is slowing rapidly.
Now the interpretation you'll hear people place on this, is that the end of the mortgage-bubble has finally found a way to affect the real economy. More specifically, consumers are reacting to the decline in the values of their homes by spending less.
Except that we've seen no corroborating statistics to indicate that consumer spending is slowing. Rather, the opposite seems to be taking place.
To repeat what I've said any number of times here over the last few months: the global credit situation will strongly and negatively affect economic growth.
Although there have very recently (since New Year's) been some hopeful signs that life is returning to the market for short-term borrowing by corporations ("commercial paper"), credit markets as a whole remain in a deep freeze around the world.
I believe that this trend, which tends to reduce business investment in the developed countries, will result in a strong headwind in the US economy. Those of us who have been saying that for months have been waiting for confirming signs in the economic statistics.
There has been no lack of signals of weak activity in Europe, which was hit by the credit crisis far worse than we were. (It turns out they were the people who supplied the money for much, maybe most, of the US mortgage bubble.)
The US has been more resilient. Until this morning.
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Weak Employment Numbers from the Department of Labor 14 Comments (0 topical, 14 editorial, 0 hidden) Post a comment »
The Europeans are caught in a box and can't increase rates. If anything they will have to cut, because the strong euro is really hurting them. European economies, notably Germany, are considerably more sensitive to export performance than ours is. And (naturally) Germany is where the inflation hysteria is the highest.
Betting on lower US rates: I think this morning's report is going to add a lot to expectations of lower rates. The next Fed meeting is Jan 29, if memory serves.
I'm starting to think that we might get another round of extremely low policy rates, as we did after 9/11. In a mature economy, I don't think that's necessarily a good thing, regardless of what Jim Cramer says.
You may have seen the FLA report yesterday that pegged German unemployment at a six year low and future hiring intentions favorable. The WTO also noted Germany as largest exporter in 2007 and their low reliance on debt as a finance tool may help them in this market. The only rumbling are on the labor cost front, but I am not completely familiar with the issues.
Anyway, to your original point even with all those positives, I would take our current market any day.
"Nec Aspera Terrent"
bene ambula et redambula
Contributor to The Minority Report
...compared to Germany and others, is flexibility. The global economy is changing in secular ways, quite apart from cyclical factors and stresses like the credit crunch.
When conditions change rapidly, American investors and businesspeople are always the fastest in the world at making the necessary adjustments. This pays off big time.
One of the key reasons for this flexibility (not the only one) is the relative liberalism of our labor laws. The French are trying to improve their labor laws a little. In Germany, they know darned well that labor regulation is hurting them, but they can't make progress. They're even talking about going backwards, with proposals for maximum salaries.
Of course, if we get a socialist President next year (whether he/she is named Clinton, Obama, or Huckabee), look for our labor regulations and enforcement to start going backwards too.
Could this actually help the housing market as buyers on the fence get off to make purchases now before rates start to climb again?
Joanie
RV Wanna-be
Maddie the Wonderdog
"apackof2, coming to a town near you!"
It is of the LORD's mercies that we are not consumed, because his compassions fail not.
Lamentations 3:22
If you look at the history of the employment numbers, you'll see that they are often revised in subsequent months, and usually upward. It may be that the expectations have taken this into account, but there is no indication that this was done.
It's too early to read much into these numbers, or into the change in the dollar's value, unless you are a day-trader. The sky is not falling.
My real point is that, if the US economy slows down or contracts, it's not necessarily going to be because of lower home values.
mattered a whit?
Mike Gamecock DeVine @ The Charlotte Observer
http://thehinzsightreport.com
www.theminorityreportblog.com
www.race42008.com
www.fred08.com
...it would have been baked into the markets by now. So on balance, you're making a good point.
Tangentially, market participants have been so confused and uncertain about the outlook for 2008 that they haven't wanted to make any big commitments till the economic picture became less contradictory. Today's report, if anything, makes the picture even more confusing.
That in itself is enough to keep investors on the sidelines to some extent.
times that the experts' predictions have been accurate since Dubya took office, and their predictions lead all news stories in an effort to play down good news.
Reality matters
Mike Gamecock DeVine @ The Charlotte Observer
http://thehinzsightreport.com
www.theminorityreportblog.com
www.race42008.com
www.fred08.com
And of course the only systematic way to predict the future is to make projections by extending current trends.
That's how every political and financial pundit makes his living. And of course it's the meaning of the economist's favorite phrase, "all else equal."
But life doesn't work that way. In fact the only thing you can really say for sure is that current trends will not continue, and that there will be surprises.
historic continuation of the Reagan Recovery in the 2000s is not celebrated; that the American people don't know how thankful they should be for the Monetary policies of Friedman and the tax policies of Bush. The American people are denied the triumphalism of what we have accomplished in Iraq and Afghanistan and here at home and of real heroes.
Now, no matter the news, there are always 5 "buts" to make us worry.
God knows what matters are the jobs that are created, not how many were predicted.
Mike Gamecock DeVine @ The Charlotte Observer
http://thehinzsightreport.com
www.theminorityreportblog.com
www.race42008.com
www.fred08.com
Left to go Up.
Look at our employment numbers, after all. And our production per capita (or whatever the measure for productivity is).
Where are we going to get any upward movement From?
"Guns don't kill people...
"...But they sure help!"
-Paul Giamatti, Shoot 'Em Up
Less importantly, a certain amount of organic growth from demographics. This growth will likely be less than usual this year as we get less illegal immigration (much of which was attracted to jobs in the now-dead construction industry).
More importantly, growth will come from exports and from returns on foreign direct investment.
Reading the outlook from government statistics (as journalists tend to do) can be extremely misleading. If you talk to people in business every day, as I do, you get a very different picture.
Any business in America that has significant exposure to overseas markets is just kicking tail these days.
Oh yes, your other question: US per-capita GDP is about $45,000, by far the highest among large economies.
What do you make of the dollar rise against Euro this morning? It seems inconsistent with Euro inflation at a six year high and a potential rate increase looming. Is the bet that no Fed rate cut is coming?
"Nec Aspera Terrent"
bene ambula et redambula
Contributor to The Minority Report