What are the expectations, and how might they play out? Consensus is for an optimisitic (no surprise there) 175,000 new jobs. That translates into modest job creation over the 150,000 required just to keep up with population growth.
Given that the economy is — pick your poison: in a "slow patch" or
simply slowing — that 175k number may be a bit on the high side. I’m sticking
with what’s been working, and once again, "taking the Under."
The WSJ’s Ahead of the Tape column today reports that "An index based on how the major economic numbers are doing relative to expectations put together by Merrill Lynch economist David Rosenberg is at its lowest level since hitting a record low last fall. Coincident with the drop in Mr. Rosenberg’s index has been a sharp drop in long-term interest rates. Since hitting a year-to-date high of 4.64% a little more than a month ago, the yield on the 10-year Treasury note has fallen to 4.16%."
Surprisingly, the Dismal set has only modestly ratched down their expectations. As we have discussed previously,
the reason for their losing streak is likely their poor choice of data sets
for comparison. They remain inaccurate but precise — they are consistently wrong, but mostly err to the upside. That reflects an error in their models. Instead of looking at all post WWII recession
recoveries as a baseline, they should be comparing this environment
with other post-buble, post-crash eras: 1929, 1972, Japan 1989. Perhaps that
frame of reference would improve their forecasting accuracy.
From a sentiment/psychology perspective, it would be nice to see numbers being wrong cause expectations were too low for a change.
The real oddity here is how today’s data — good or bad — might play out. Is good news good, or is good news bad? Is a strong number perceived as too strong, thus given higher expectations of the Fed tightening cycle continuing? Or, is a weak number, while ominous for the economy, provide some relief, reducing pressure on the Fed?
In the present environment, I think bad news is bad. The Fed is tightening not because of wage pressure; We know there is tons-o-slack in the Job market. Unless we see a boffo number — +300k — its hard to imagine that good news is anything but good news. It makes the so-called soft patch more likely to be just that.
The downside risk is another stinker: A poor number increases the likelihood that the soft patch ain’t, and is instead a genuine slowing as the economic stimulus fades.
We’ll find out in an hour or so . . .
Ahead Of The Tape
May 6, 2005; Page C1