Brace Yourself: Its NFP Day!

There seems to be some buzz about this month’s NFP Job Data building — although new unemployment claims came in the same as last month (315k), and the ADP report was essentially unchanged.

I’m watching 3 data points for insight into the monthly numbers: Retail sales, GDP, and (of course) Housing.

For most of this post recession recovery, Housing was a large net job creator. From Mortgage brokers to Contractors, Home Depot and Lowes to Real Estate Agents, Housing was a huge source of new job creation. Real residential investment fell in Q2 at an annualized rate of -9.8%. We’ve seen Housing turn into a net Jobs negative.

Retail is a mixed picture at best: We’ve seen some good numbers from some stores thanks to a late August shopping surge — Wal-Mart was strong, Target was fair, CostCo poor. These cracks imply the consumer is growing tired; Not yet Shopped Out — but getting there. CNN Money noted that generally, Retailers back-to-school sales were mediocre. August retail followed a poor June but a strong July.  The WSJ took the analysis a step further with a page 2 story Mixed Retail Results Breed Unease:

•  Tax holidays and summer clearances helped to drive retail traffic.

• Consumers made purchases closer to the start of school year.

• Parents were more cautious about spending, focusing on shopping-list essentials and bypassing discretionary items.

Bottom line is that retail is not likely to be a big net add.

The last part of our unholy trinity is the GDP revisions up to 2.9% from 2.5%. As is so often the case, you need to delve beneath the headline figure. The revised Q2 figures are not nearly as robust as the headline data implies. Nouriel Roubini notes that "almost all of the upward revision to the figures comes from a much larger increase in inventories of unsold goods, an ominous signal for future growth as firms saddled with unsold goods will soon start cutting production (as it is happening, for example in the auto sector). Indeed, if you exclude inventories and look at final sales, the figures are much worse: in Q2 final sales of domestic product grew only 2.3%."

The other element to be wary of is the import/export data. If the ratio improves due to the U.S. exporting more goods, that is a net positive. More manufacturing/service providing means the economy is in fact expanding. However, this month’s revision had the ratio change due to a decrease in net imports. That reflects a slowing in import consumption by U.S. consumers. 

Indeed, the unexplained drop in CPI due to apparel prices the past few months reflects a similar situation. Clothing prices didn’t suddenly drop due to a reversal in inflation — they were discounted to stimulate sagging sales.

A sharp increase in inventories is also worrisome. Any increase in the supply of unsold goods at this late stage of the business cycle should be looked at as a leading indicator of future production slow downs. As demand slows, and inventories rise, it bodes poorly for the business side of the economy.

Bottom line: Consensus is 130k — I’ll stick with the "Under."


Mixed Retail Results Breed Unease
Teen Chains’ Sales Increase But Gap, Penney Struggle;
U.S. Spending Data Rise

September 1, 2006; Page A2

Revised Q2 GDP Figures: Much Worse Than the Headline…
Nouriel Roubini
RGE | Aug 30, 2006

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What's been said:

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  1. Andy commented on Sep 1

    A local Dodge truck dealer here is advertising Dodge Ram trucks with … get this… $10,000 off of list price. Seriously. Spotted another dealer with an $8K discount on their web site. You don’t do that when business is going well.

  2. barry hames commented on Sep 1

    Andy, Dodge has offered significant discounts on its trucks for some time. Basically since gas prices went to nearly $3.00 per gallon. The Amercian trucks have the poorest fuel efficiency. Toyota is selling the heck out of its Tacoma and Tundra lines. My Chiropractor nephew can’t wait for the 2007 Tundra to hit the lot.

    Incidentally, auto sales have been deflationary for some time as well. I bought a 1997 Ford Taurus for $17,500 and have noticed anytime during the last five years I could have bought a new Taurus with better equipment, better mileage for less money. Here again, the Japanese were offering better cars, driving down the cost of the American alternative.

    Barry H.

  3. NotAPro commented on Sep 1

    128K, Barry wins.

    NYT link

    Isn’t this a rather pathetic number? Unemployment down to 4.7? Or is it really a bunch of people who stopped looking for work (and are not counted)?


  4. Skoobz commented on Sep 1

    Buy call options on kleenex. Bernanke and Bush have to wipe their lips after all the head they gave Elaine Chao to score this type of BLS-fabricated garbage:

    “Construction industries added 17,000, including 4,000 in residential construction.”

  5. DJ commented on Sep 1

    “Indeed, the unexplained drop in CPI due to apparel prices the past few months reflects a similar situation. Clothing prices didn’t suddenly drop due to a reversal in inflation — they were discounted to stimulate sagging sales.”

    Isn’t that sort of like saying ‘Deflation ex deflation’?

    I really enjoy your blog Barry, though we disagree on the future of inflation (I believe a slowdown will cause inflation to cease being an issue once consumers stop their MEWs – can’t get blood from a stone you know). Even so, your blog is very informative.


    BR: DJ — we don’t disagree — its merely a question of when this will occur. I still see demand driven inflation from China, but as we get closer to the 2008 Olymbics, their bulding frenzy will subside.

    Deflation ex deflation? Thats a KEEPER . . .

  6. M.Z. Forrest commented on Sep 1

    There may be a perfectly reasonable explanation for why construction jobs are up. Around here they are hiring like mad, because we had a large hail storm this summer. You still have lots of construction going on in the South rebuilding what was ruined by Katrina. I’m not however claiming that we won’t see a downward revision of the numbers.

  7. Skoobz commented on Sep 1

    “Spending on U.S. construction projects fell by 1.2% in July, dragged down by a drop in private residential construction, the Commerce Department said Friday. Spending on home-building fell by 2.0% in July, the lowest rate since March 2005, another sign of the slowing housing market that has cooled the pace of the overall economy.”

    Hmmm, okay. Now I understand how construction added jobs…er, not.

  8. barry commented on Sep 1

    CnnMoney reports: “U.S. payrolls grew by 128,000, according to the Labor Department report, up from the 121,000 reported in July. Economists surveyed by had forecast a gain of 125,000 jobs.” This number with related gain in hourly rate represents a goldilocks number….hence the market moves higher.

  9. Michael C. commented on Sep 1

    Contruction is not only residential, but commercial, which is supposedly still very strong.

  10. Andy commented on Sep 1

    I’m with you Skoob (other than the terrible visual from earlier): how does construction ADD jobs while at the same time spending in construction falls?

    A new conundrum is born!

  11. JDamon commented on Sep 1

    Good point was brought up about all the storms, as well as the Katrina rebuilding. Construction guys are pretty mobile (i.e. the move where the work is). In the midwest, we had a couple bad storms that created a ton of roofing projects (10 – 12 in my neighborhood alone). Don’t you think this will help cushion the impact of significantly lower new home starts in the next 12 – 18 months?

  12. Skoobz commented on Sep 1

    Re: Conundrum.

    I’ll tell you how constuction adds jobs: a computer model. Do you think the BLS actually counts every Evelyn, Oswald and Jorge that has a construction job? No way.

    It’s a rough guess based on what a computer model tells them, and the fallibility of that guess has been confirmed by the contradicting evidence of contraction within the constuction industry.

    If you actually believe that “maybe” people are being hired to finish jobs before the bottom of the real estate market falls, or other rubbish theories, then i have a bridge to sell you in Brooklyn.

  13. Skoobz commented on Sep 1

    Re: storms

    No, not a good point at all. This building would have been reflected in construction data. You’re trying to rationalize a fallacy. It’s pretty funny, actually.

  14. eightnine2718281828mu5 commented on Sep 1

    Does the BDM get broken out by source?

    Because I understand the BDM is highly inertial and will miss inflection points, which could explain the bogus construction figure.

  15. bk commented on Sep 1


    I must disagree with your characterization of Wal-Mart’s numbers as ‘strong’, unless, of course you have fallen into the trap of speaking only on a relative basis. Same store sales +2.7% in August. Given the error of measurement, this is about equal to the Fed’s bogus inflation [ex-inflation] number.

    In other words, adjusting for inflation, same store sales at WalMart were flat – or down if you want to use a more realistic inflation number. This inflation charade needs to end.

  16. blam commented on Sep 1

    I like reading this blog – but maybe it is because I agree with the consensus view. After watching the August market creep into today – I’m in need of a reality check. It looks to me like this rally could continue up for the forseeable future –

    The GDP number was bad, the employment number has been bad for months, the trade deficit was bad, the housing numbers are baaaad ——–

    So how is the stock market going up ? This is absolutely mind boggling to me. Who is buying the shares and what are their motivations ?

    The maket is supposed to reflect the consensus outlook on the economy and earnings. How can the economic outlook be interpreted as being favorable for equities?

    Somebody is wrong. Is the market just a manipulated con job dominated by an organized crime syndicate ? What is it I’m missing.

  17. DJ commented on Sep 1

    You are missing asset inflation. When wealth is distributed unevenly there will be too many dollars chasing too few assets.

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