Are the markets wrong today?
Is the economy still dangerously close to overheating, despite todays numbers? Consider the following from the New York Times... [disclaimer, I am 100% cash]
Jobless Rate in August Again Dipped to a
29-Year Low
By SYLVIA NASAR
Despite the Federal Reserve's recent attempts to cool the American
economy, the temperature is still pretty hot.
The Labor Department reported on Friday that the nation's jobless rate
in August dipped once again, to 4.2 percent, the 29-year low first
reached in March.
Employers added 124,000 workers to their payrolls on top of the
338,000 added in July. And a host of other measures -- from hours
worked to the fraction of Americans who hold jobs -- showed that the
labor market continued to boom.
"The labor market is tight and getting tighter," said Paul Kasriel, chief
United States economist at Northern Trust in Chicago.
Economists at the Labor Department cautioned that both August and July
payroll numbers were distorted because many factories and businesses
that normally close in July to retool and allow workers to go on vacation
didn't this year. Since seasonal adjustment did not capture that departure
from past patterns, hiring looked stronger in July and weaker in August
than was actually the case.
"If you look at July and August together," said Tom Nardone, chief of
labor statistics, "everything looks like it did earlier in the year."
Wall Street, which had been bracing for signs that the economy was even
hotter, took comfort in the facts that the August payroll increase was not
as large as expected and even more in the absence of any sign that wages
were taking off.
Hourly pay rose a mere 2 cents in August, to $13.30. Pay had jumped
10 cents between May and July, frightening investors and helping prompt
the Fed to raise rates twice this summer. But it is now just 3.5 percent
higher than a year ago, an increase comfortably within the range of the
last few years.
"This substantially alleviates concerns about another Fed tightening," said
Ed McKelvey, an economist at Goldman, Sachs & Company. "We
thought we were seeing an acceleration in wages, but now it appears that
maybe we're not."
Investors celebrated with stock and bond rallies. The Dow Jones
industrial average jumped 2.17 percent, and the Nasdaq composite index
had its largest one-day point gain ever, 108.87 points, or 3.98 percent.
The yield on 30-year Treasury bonds fell from 6.13 to 6.03.
Employers have been expanding payrolls faster in the last two months
than in the first half of the year, by 231,000 a month compared with
210,000 a month. That suggests that the economy has picked up steam
since the spring when growth slowed to a mere 1.8 percent annual rate
as a sharp widening of the trade deficit trimmed the nation's production of
goods and services. Meanwhile, a raft of recent reports point to robust
demand for everything from houses and cars to factory orders to exports.
"Nobody in his right mind would lower their G.D.P. estimate on the basis
of today's jobs report," said McKelvey, who estimates that the economy
is growing at more than a 3.5 percent rate this summer. "If anything, you
could argue that you should raise it."
That leaves the Fed more or less in the same bind it has been in all year;
namely, having to justify rate increases at a time when, despite rapid
growth and a tight labor market, there is little evidence that inflation is
breaking out -- especially at the consumer level.
Most of last month's hiring, as usual, took place in the services area,
which already employs the lion's share of America's work force. Service
companies added 219,000 new jobs, only slightly fewer than the monthly
average for the last year. Nearly 50,000 of those jobs sprouted in
business services, many in computer and data processing. Hiring was
strong at brokerage firms, doctors offices, hospitals, law firms and all
sorts of entertainment businesses, from movie theaters to amusement
parks. But despite help-wanted signs in many stores, retailers hardly
added to their head count. Retailers had added 99,000 workers to their
payrolls in July. And while auto dealers and furniture stores kept on
hiring, fast-food chains and other restaurants reduced the number of
workers.
In the otherwise robust job market, there were some glaring weak spots.
Despite a raft of signs -- from rising materials prices to stronger orders
and higher production -- that manufacturing was on the mend as
economies in Asia and Europe recover and exports pick up, factory
employment shrank by a sharp 63,000, more than reversing July's gain of
51,000. But Katherine Abraham, commissioner of the Bureau of Labor
Statistics, cautioned against reading too much into the August drop. "The
pace of manufacturing job losses has been much slower over the past
two months than during the first half of the year," she said. Makers of
cars, furniture, primary metals and electrical equipment all expanded
payrolls.
Another soft spot was construction, which shed 29,000 jobs in August.
Essentially, the number of construction jobs is no higher than at the start
of the summer. Last summer, by contrast, it added 70,000 workers to
payrolls. It's not clear, though, whether higher interest rates are crimping
the demand for new houses, office buildings and roads. Hiring was
exceptionally strong all winter and spring and shortages of both skilled
workers and construction materials may be the problem.
The labor market continues to pull in workers who have historically
suffered from high unemployment rates. Unemployment among blacks,
Hispanics, women and workers with high school educations or less are
all at or near historic lows. The Labor Department's broadest measure of
unemployment, which includes not just those who are job hunting but also
those who have stopped looking, has fallen sharply from a year ago. And
employment growth is outpacing labor force growth by a wider margin
than last year.
"The reserves are dwindling," Kasriel said. "We're calling them up. That's
good for people who are working and want to work. But we're running
out of workers."
There's every reason to expect the labor market to stay tight. Businesses
say they anticipate adding to their head counts. "Hiring plans are strong
for the fall," said Terry Hueneke, executive vice president at Manpower
Inc., one of the nation's biggest employment services companies and the
sponsor of a quarterly hiring survey. "It appears to be fairly well across
the board."
Tom D |
