No doubt, there is some improvement in the numbers. Job losses have significantly improved (relative to Dec-March) and there were small increases in hour worked and average hourly earnings (both positives for consumer purchasing power). And even better, the unemployment rate FELL instead of rose.
(Wonder what the odds were on that? Were there actual odds placed on this in Vegas? Who ever the bookie was, he got creamed today.)
It seems though that I exist for the purpose of finding holes in the data, and as usual, holes were to be found. Now remember, I am finding holes not in the “stabilization story”. That is indeed occurring and should continue over the course of Q3 and a little of Q4. However, I am finding holes in the “V-shaped recovery story” that seems to be priced into the market.
Distortions and Seasonality might have accounted for this “better than expected” report. As far as distortions are concerned, the manufacturing portion is in question as it reported a much “less bad” number than expected. Didn’t we also see this distortion over the course of the last 4 weeks in the Jobless Claims due to the turbulence in the auto sector? The fact that this distortion could have played a positive effect is probable in my view. As far as seasonality is concerned, leisure and hospitality have recently accounted for some of the gains over the past two months. Gains in this industry should be temporary as there is no sign of renewed end demand (except for auto demand, courtesy of your fellow citizens helping out…you’re welcome). Firmness in wages this month? Well, we did have the minimum wage increase of about 10% take place this month. Increase in the workweek? Once again, mostly due to strength in the automotive sector which indeed is benefiting from stimulus to consumption in the sector (is it genuine demand though?). Then there are questions over the validity of the Birth/Death Adjustment and how it might be impacting present and past reports.
Another reading, one that seriously questions the validity of the report altogether is the unemployment rate decreasing to 9.4% from 9.5%. Really guys/gals? Unemployment dropped? Could it maybe, just possibly, be that folks are actually falling off the system altogether (a slide in the labor force)?
Why did the report seem to counter the Non-Manufacturing Employment Index for July (80% of the economy there), The Consumer Confidence Index, and the ABC Consumer Confidence over the past 4 weeks? When a majority of consumer and business oriented surveys overwhelmingly point to continued contraction or caution in consumption and investment plans respectively, do these reports make sense in conjunction?
Who’s right? I more likely inclined to go with numbers as well as quality. Consumer confidence surveys really show what is going on on Main Street and they serve me as confirming indicators to the gov’t reports. So far, they are not confirming one another. Labor statistics with adjustments and notes on possible distortions just don’t do it for me 100%. Therefore, this might not be the beginning of a strong trend (which I believe has been priced into the market), but rather a much slower developing trend.
Most importantly is how does this report tie in with the bigger picture? I believe that one of the most important factors for economic expansion is job growth, but why? Well, because it increases consumer spending power in the form of WAGES.
For wage growth to solidly recover, we will need to eliminate the very high labor glut currently present (this is a simple demand/supply concept). Until we get rid of it, we will have flat to lower wages, which so far seems to be in the offing as we might be in the early stages of a jobless “recovery” (I’m still skeptical: unless you equate a “recovery” to an inventory bounce).
What matters in the end to equities, is a recovery. This means that wage and job growth must turn positive for there to by any significant growth in spending. Credit (home equity and credit cards) will not provide the spark to a strong recovery this time around. I look back and examine the portrait, and I just don’t see what the artist sees
(HT Immobilienblasen for the image)