February's NFP

Here are a few comments from analysis David Rosenberg.  Take this into consideration when March numbers are released.

"Here is what I think is important: because of the winter storms, we really have to average out the past two months. So the January-February average for payrolls is +128k. Allowing for a similar reading in March that we received in February would generate an average increase for the first quarter of around 150k. That is little changed from what employment gains averaged on a monthly basis in the fourth quarter.

So while we are seeing positive job growth, it is not accelerating even though we are coming off the most intense impact of the fiscal and monetary easing that was unveiled late last year. In other words, we are disappointed with what is still a lackluster trend in net job creation, particularly in view of the peak stimulus we are currently experiencing.

What if Q1 is the peak for job growth? If you remember, we ended up with sub-3% GDP growth in the fourth quarter, which is about half of what we should be seeing at this stage of the cycle. And if we are generating jobs at a similar rate in the current quarter, barring a re-acceleration in productivity, growth again will be below 3% at a time when the consensus is closer to 3.5%. But more to the point — what if this represents the peak for the year? Because if there is one thing we do know, it is that this quarter contains all the incremental policy easing impact on the macro data.

What was particularly discouraging was the fact that both the wage number and the workweek were flat. Nominal wages, in fact, have been stagnant in three of the past four months. Weekly average earnings have also been flat or negative in three of the past four months. How on earth can these statistics possibly be viewed as bullish for the economy? The year-over-year-trend in average weekly earnings in the past three months has softened from 2.6% to 2.5% to 2.3% today. At the same time, it is probably reasonable to assume that surging food and fuel costs will bring headline inflation to, and possibly through, 3% in coming months. In other words, the growing risk of falling personal income in real terms, even with the positive growth in payrolls, is a glaring yellow light as far as the consumer spending outlook is concerned.

Yes, the unemployment rate dipped again to a 22-month low of 8.9% from 9.0% in January and the nearby high of 9.8% in November. This reflected a 250k rise in Household employment — the third increase in a row — and a flat participation rate. A couple of behind-the-scene facts: from October to February, an epic 700k people have left the work force. If you actually adjust for the fact that the labour force participation rate has plunged this cycle to a 27-year low the unemployment rate would be sitting at 12% today. Moreover the employment-to-population ratio — the so-called “employment rate” — stagnated in February at 58.4% and is actually lower now than it was last fall when “double dip” was the flavour du jour.

All that matters in these employment reports is what the jobs environment means for income, because workers generally spend in the real economy. With credit harder to come by, and with fiscal policy soon to become more focused on austerity, it is the income that the labour delivers that will prove to be the critical determinant of the economic outlook. So while the “spin” may be over near-200k headline payroll gains, another dip in the headline unemployment rate, the organic income backdrop can really only be described as tentative, at best, especially in real terms as gasoline prices make their way to $4 a gallon by the time Memorial Day rolls around."

Happy Trading!!


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