Employment and personal income

Employment continues to grow at the pace we’ve seen for the last couple of years at a pace that’s perhaps a bit ahead of population growth (chart).

The question is whether this is sufficient for the Fed to taper, which I’d say is anyone’s guess right now.

The FOMC clearly doesn’t like QE, but at the same time seems to me they will shy away from doing anything that might cause further increases in mortgage rates?

And for those who believe QE ‘works’ to sustain growth (or, as some believe, bring it back from the future), they have to be very concerned that with all the QE they’ve done this is all we have to show for it, wondering how bad it would have been without the QE, or what might happen if they back off.

October personal Income also was released at 8:30am and was weaker than expected, with the govt. shutdown likely a factor, so, as it’s been for a while, it’s a matter of waiting for cleaner data.

Inflation indicators continued weak as well, further complicating the tapering debate:

Personal Income and Outlays:

Highlights:
Overall consumer spending picked up a bit as expected at the beginning of the fourth quarter but not by much, to plus 0.3 percent in October vs plus 0.2 percent in September. Strength was in durable goods reflecting strong auto sales. Smaller gains were posted for nondurable goods and services.

The income side of the report is especially soft, at minus 0.1 percent following two very strong months at plus 0.5 percent. The decline is the first since January and may be related to the impact of the government shutdown on private wages. Wages & salaries are especially soft, up only 0.1 percent following gains of 0.4 and 0.6 percent in the two prior months.

Inflation readings are very soft with the price index unchanged and the core index up only 0.1 percent. The year-on-year rate for the price index is only plus 0.7 percent with the core year-on-year rate at plus 1.1 percent, both declining in the month and both well below the Fed’s goal of 2 percent.

PCE Deflator Graph
Personal Income Y/Y Graph

Service Sector ISM//NFP


Karim writes:

Similar to manufacturing, service sector ISM stabilizing at high levels; Large increase in backlogs also bodes well for future activity.

With employment index now also crossing the 50 level, adds to upside potential in NFP tomorrow; look for headline NFP up ~600k; with ex-census up ~225k.



May April
PMI 55.4 55.4
Activity 61.1 60.3
Prices Paid 60.6 64.7
New Orders 57.1 58.2
Backlogs 56.0 49.5
Employment 50.4 49.5
Export Orders 53.5 57.0
Imports 56.5 56.5

Anecdotes below seem to bode well for corporate profits: demand improving and costs controlled.

  • “Our business continues to grow. We are significantly above last year’s pace.” (Information)
  • “Business is steady right now — not the normal spring for construction, but improving.” (Construction)
  • “Outlook is still generally flat for the remainder of this year, with signs that orders and activity will be picking up.” (Professional, Scientific & Technical Services)
  • “Continuing our pattern of cautious optimism. Consumers appear to be coming out of hibernation and willing to spend. We expect that if this trend can remain solid, we’ll in turn spend additional dollars to support and drive sales activities.” (Retail Trade)
  • “Customers’ activity is improving in some parts of the country.” (Wholesale Trade)
  • “We continue to ‘staff to volume’ in order to control labor and supply costs.”(Health Care & Social Assistance)

Yes, looking like we’re modestly improving domestically with the risks mainly external including spillover weakness form China and the euro zone.

Export growth down a touch but not serious to this point.

NFP: 13.5%!


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From Karim:

Total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force:

This measure rose from 12.6% to 13.5% in December. It was 8.7% in December 2007.

As for NFP/UE:

  • -524k; net revisions -154k
  • Unemployment rate rises from 6.8% to 7.2%
  • Hours fall another 1.1% (negative for production and a precursor to more layoffs)
  • Average duration of unemployment up from 18.9 weeks to 19.7
  • Diffusion index down from 27.2 to 25.4
  • Manufacturing (-149k), construction (-101k), temp help (-81k) and retail (-67k) lead the way lower.


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