Well, the markets liked it.
NFP’s soft number 138k number for April — and the 36,000
downward revisions for the prior two months — heartened equity and bond
holders alike, as both asset classes rallied.
Focusing on the hope the Fed might stop sooner — rather
than why they would — is a short sighted habit of wishful thinking by
Quite bluntly, we simply do not see the Goldilocks scenario
— strong GDP, modest employment improvement, well contained inflation — as
supported by the data. Our read of the
strong Q1 GDP and Durable Goods data was a result of a horrific Q4 2005,
following the disruption of Katrina and Rita. Rather than taking the hot Q1 numbers
as proof of strength, we interpret this as little more than Q4 activity getting
pushed forward. Concurrent with that, we read the weak hiring data as a sign
that higher fuel prices and increasing interest rates are beginning to take a
toll. Further, it appears we are on the verge of feeling the impact of the
cooling housing market.
Additionally, for those who wish to obsess over what the
Fed’s next move is, consider the underlying data as more mixed than benign. Average hourly earnings up 3.8%
(annually), hours worked rose incrementally. We know the Fed tracks wage push
and labor utilization closely. Barring
proof of a significant slowdown, we expect at least 2 more increases from the