Forget About Job Growth

I was all set to write a post today about how little I thought the jobs number mattered. How it is one of the most over-rated releases (maybe second to consumer confidence). Then the stock futures sell off 100 points and I smile, because its making my argument all that easier. Now we’ve traded back to flat. Blast! Whatever. I’ll make my point anyway.

I’ve written several times that any number which doesn’t predict anything isn’t worth much to traders. Job growth is a notorious lagging indicator, so why should I put any stock in the Non-Farm Payroll number? Especially since there is a lot of seasonal adjustments and other extrapolations in these numbers. I refuse to read much into any given monthly number.

The exception is when it comes to Fed policy. If the number had come in very strong, say flat job growth, then I would have assumed a Fed hike was coming much sooner, maybe even January. The Fed has historically not been willing to hike rates while unemployment is rising. So if employment surprised big to the upside, that would leave the Fed much more willing to move. As it is, the number is steeply negative, and thus leaves unemployment flat to worsening. Not good, but not fundamentally different that where we were before the number.

In my mind, the economy remains a mixed bag. We will be getting some positive GDP growth for the next couple quarters as we rebound from the sharp decline of Q4 and Q1. After than bounce, we probably grow very slowly or possibly slip into a mild decline. The data supports this view. Just consider the non-job related numbers of the last two days: Personal income rising very slightly, Personal spending showing some signs of life with a 1.3% increase. Yet the ISM comes in at a tepid 52.6, which follows up on weak regional PMI numbers. Pending home sales looks solid at +6.4%. I still think Case Shiller is telling us home prices are bottoming. That’s good.

So like I said, we may grow at a very tepid pace or we may slip back into mild negative growth. I think the difference will depend on how consumers react to the withdraw of government stimulus. My personal opinion is that the stimulus achieved less than what many perceive. Somewhat paradoxically, that’s a relatively bullish thought since if the stimulus programs didn’t do much, then the current uptick in consumer spending is sustainable on its own.

I think home sales, consumer spending, and manufacturing data are the statistics to watch most closely. Forget about job growth.

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About Accrued Interest 118 Articles

Accrued Interest provides unique, expert insight to developments in the U.S. bond market. It is written by an anonymous professional working in the field.

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