The employment situation has been gradually improving. Has it reached the point where an upside surprise is possible?
Like Housing, Unemployment has been a headwind facing the economy. The script following a major credit crisis typically involves high unemployment, low growth, and delveraging that impacts consumer spending, The post 2007-09 crisis is no different.
As of late, we have seen not great, but improving employment data. The Census noise is now behind us, and we are entering a period that will likely determine the next 12-18 months of economic growth.
The October data saw 151,000 new hires, and significant revisions to the prior 2 months. Put this number in context — we need 150k per month just to keep up with population growth. If we were to get a 150k/mo for the next 12 months,m we would not see an appreciable decline in the Unemployment rate.
A 200k monthly number (or better), however, will make a dent in the U3 Unemployment number. And the U6 number could also improve, as employers add hours to part time workers.
The psychology of a few months of strong data could have a very positive effect on hiring, wages, and capex spending.
If DC could marry an Accelerated Depreciation tax cut with a payroll tax holiday for just one year, I believe we would see a very signficant uptick in both Capex and Hiring. Add to that a temporary rate reduction for corporations repatriating overseas cash, and you have the makings of a more robust recovery.
Right now, I think more people would be surprised by stronger upside numbers than down. After a few months, it might even remove the fat thumb off the scales in favor of more QE2.
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Chain Store Sales, Monster Employment Index, ECB Announcement, Jobless Claims and Pending Home Sales Index later today could provide some insight into what Friday’s Employment situation might look like . . .
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