As we expected, yesterday’s NFP was another stinkeroo. The 121k number was significantly below the 200k consensus, and far, far away from some of the myopically optimistic upside outliers.
Let’s delve beneath the surface a bit, first via Barron’s Alan Abelson:
Philippa Dunne and Doug Henwood, our favorite parsers of the monthly
employment reports, put it: "This was a weak report, with few signs of
strength under the surface." They note that the 121,000 slots added
brought the average monthly gain in the second quarter to a meager
108,000, sharply below the first quarter’s 176,000 and even more
sharply below the long-term average of 236,000.
A full 25% of the gain was from government hiring, mostly local and
state . . .
A good chunk of the 75,000 new jobs from private services were
from health care and the bar and restaurant sector. That prompts our
jolly duo to speculate that "maybe our new economic model is one in
which vigorous eating and drinking inspire a lot of doctor visits,
which reinvigorate us for a fresh round of eating and drinking." We’ll
drink to that.
Unemployment held steady in June, at 4.6%. But a glance at the data
in the report reveals the percentage of people who want a job but can’t
get one edged up to 5.8% of the labor force from 5.3% in May. If you
toss in the number of folks who work part time even though they’d
rather be working full time, the percentage rises to 8.7%, from 7.9%
the month before." (emphasis added)
So not only was the top line poor, but the data points touted as strong — primarily, the low unemployment number — was lousy also.
Jared Bernstein of EPI provides some insight into why employment growth has been slowing:
"An important hint from today’s report, for example, shows that employment in residential construction fell 6,800 over the past two months, the sector’s first back-to-back monthly losses since the spring of 2001. Thus far this year, residential construction employment is up 7,000, compared to an increase of 20,000 over the same six-month period last year. And while employment in real estate was up 5,000 last month, job growth among credit intermediaries and insurance carriers—so-called "downstream industries" from the housing sector—has been notably flat over the past few months. In other words, there are many connections between the housing sector and other sectors in the job market, and the cooling of that sector has far-reaching implications."
Regular readers of The Big Picture will no doubt recognize this line of thinking.
The bottom line is that this cycle — artificially driven by government stimulus — is coming to the end of its unnatural life. Look for a return to the prior period of flat growth and even weaker job creation — at least until the next round of Rate Cuts restarts the real estate machinary . . .
UP AND DOWN WALL STREET
Barron’s MONDAY, JULY 10, 2006
Slow job growth in second quarter reflects pace of overall economy
Jared Bernstein with research assistance from Yulia Fungard
EPI, July 7, 2006
NFP: much ado about very little
The Big Picture, Friday, July 07, 2006 | 06:45 AM