June Payroll data: “I have some good news and some bad news.”

July 2, 2004 9:55am by

Jobless numbers came in quite light this morning at 112,000 — far below consensus estimates of 250,000. May Payrolls data was revised downwards, to +235k from a previous +248k.

This “Good News/Bad News” situation has several repercussions:

The good news is that the Fed policy of gradually removing their accommodation at the “measured” rate of ¼ point per meeting remains on track. That low cost of capital will continue stimulating the economy, albeit at a slower pace, than it has.

The bad news is that this data point, coming on top of weakening Durable Goods spending, downwardly revised Q1 GDP, slowing auto sales, and decreasing mortgage applications raise questions about the pace and even the sustainability of the expansion.

Note that the economy needs to add about 150,000 jobs per month just to keep up with the population growth of the labor pool. Thus, this recent data point means that the percentage of labor being utilized actually went down last month.

The impact of this data point puts us back on Payroll watch for at least another month. Is this way below consensus number an aberration of the prior 3 strong months, or are we seeing a reversal of the prior trend? One data point does not make a trend, but as it may signal a potential reversal, it is worth watching closely.

Lastly, consider the ongoing presidential election contest. Regardless of your personal preference, the markets have shown they have a clear preference for the incumbent over a challenger. We saw this during the March drop, as the incumbent’s approval numbers slid to their lows.

This data point places a yet another hurdle in front of the President’s re-election campaign. As we mentioned yesterday, the markets may actually — for the first time in recent memory — be paying attention to the Democratic Convention later this month. They will either try to become comfortable with the challenger as a likely successor, or in the event of a major gaffe, become less concerned about his potential for victory.

Stay tuned . . .

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  1. adaplant commented on Jul 2

    I was under the impression the markets always perform better under democratic administrations versus republican administrations. At least, I have seen reports that this is the case.

    If it is true markets perform better under democratic administrations, it appears it contradict your statement “…the markets have shown they have a clear preference for the incumbent over a challenger.”

    If both are true, then it would appear the markets favor an administration under which they will not perform as well.

    Can you shed any light on this apparent contradiction?

    PS: Sorry if this posted twice. I realized I had forgotten to close the ita;lics tag.

  2. Barry Ritholtz commented on Jul 2

    Sure,

    The market always wants the easiest route to profits — it often behaves like 2 year old (it wants its candy).

    More specifically, the survey I referenced recently Bush Support Slips Amongst Corporates, some 92% of the fund managers present said they thought Bush was better for themarkets.

    Also, in an earlier Barrons piece,Fading the Pros, 78% thought Bush was better for the market (NOTE: this group tends to be notoriously wrong).

  3. Pete Harrigan commented on Jul 2

    The argument that Democrats are better for the market seems a little silly to me. After all, sometimes Democrats mean tax cuts (Kennedy), sometimes they mean policy drift (Carter), sometimes they raise marginal rates but, whether willingly or not, cut Cap Gains rates (Clinton), sometimes they fight Nazis and run deficits at 22% of GDP (FDR).

    Furthermore, with only 5 Democratic administrations and 6 Republicans since WWII, maybe the data sample is a little small?

  5. Barry Ritholtz commented on Jul 3

    The market is far too complex to control for one single variable.

    Which party is in the White Hous is simply to tenous to tie to the markets performence — for credot or blame.

    Even if you use 3 separate factors: Sentiment, Valuation, Monetary policy you still get an enormous set of possible outcomes.

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