Another Shocker
Dr. Sherry Cooper, Chief Economist
sherry.cooper@bmonb.com
This morning's employment report for February was much worse than expected, rising only 21,000 rather than the 130,000 expected. Even the household survey, which has been much stronger for the past year, showed a net job loss of 250,000 and all historical revisions were downward. Manufacturing employment, at -3,000, was weaker than the buoyant Institute for Supply Managers surveys would have predicted, but at least the factory workweek was up and the unemployment rate was unchanged at 5.6%. This marks the fourth month in a row when the economists' consensus for payrolls was much too optimistic. And, it is certainly bad news for the Bush Administration, as John Kerry will no doubt hammer home the disappointment, repeating everywhere that George W. Bush is the first President since Herbert Hoover and the Great Depression to preside over a net job loss (of 2.3 million jobs). This also postpones the timing of any Fed tightening, as evidenced by the enormous rally in bonds. U.S. ten-year yields have fallen to their lowest level in 8 months, currently just over 3.86%.
Business hiring surveys have pointed to imminent job growth for some time. Layoffs are down, and so are initial unemployment insurance claims. Purchasing managers report strong order books and employment gains, and inventories are at a record low level relative to sales. With chain store sales strong in February, and productivity growth slowing in the fourth quarter, you would have to expect that job growth will "pop", as Alan Greenspan says, any time now - unfortunately, not yet. Consumer sentiment surveys have trended downward since the beginning of the Democratic primaries. With the Democrats and the media reminding us daily of the weak job picture and offshoring of jobs to China and India, consumers report that jobs are hard to get. No doubt, this is true.
Businesses are clearly using their existing labour forces more intensively as hours worked rise. But there is only so much longer that this can go on. No question, however, the Bushies must be very nervous. This can't be good for the U.S. dollar, which has posted three consecutive weeks of gains, nor is it good for the stock market. In the meantime, however, bonds are rejoicing and the Fed remains on the sidelines.
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