Friday, December 7, 2007

Evaluating The Latest U.S. Jobs Report

From Bloomberg:

“Jobs proved to be one of the few bright spots in a year when home prices plunged the most in at least four decades, energy costs hit a record and mortgage-bond losses roiled financial markets. Gains in wages and employment may help prop up spending as the economy struggles to avoid its first recession since 2001.

‘It buys the economy time and allows the Fed to lower rates without panicking,’ said John Silvia, chief economist at Wachovia Corp. in Charlotte, North Carolina, who forecast payrolls would rise by 90,000. ‘The economy is slowing down in the fourth quarter, but not so rapidly that you're going to have a big down-draft in consumer spending.’”

From Forbes:

“By itself, the job growth will likely not be enough to dissuade the Federal Reserve from cutting interest rates. Peter Morici, a professor of business at the University of Maryland, explained that the November job growth still showed strains from spiking subprime defaults.

‘Residential construction, financial services, and manufacturing displayed weakness, indicating growth is slowing significantly in the fourth quarter and further raising prospects for an interest rate cut at the Dec. 11 meeting of the Federal Open Market Committee,’ said Morici. At the meeting, the Federal Reserve's policy-setting panel is widely expected to cut its federal funds target rate by at least 25 basis points from the current 4.5%.”

From The Daily Reckoning:

“ADP uses the same birth/death model that the Bureau of Labor Statistics uses, which automatically voids this report in my mind. You see even the BLS admits that the birth/death model exaggerates the wrong way when cycles turn.

And the ISM non-manufacturing (service sector) Index fell yesterday, and their jobs portion of the index fell to just above the expansion level of 50, to 50.8… So, the ISM doesn't agree with ADP either…

But, as I said, this information was quickly swept under the rug, and those that were betting on a 50 BPS cut from the Fed next week, quickly removed those bets, and bought dollars… And stocks thought this news was just marvelous, but then they thought bad employment numbers were marvelous too, which means… carry trades went back on yesterday!”

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