Payrolls to take back seat in coming week´s data
Friday, March 25, 2005 5:06:02 PM
afxpress.com
Payrolls to take back seat in coming week's data WASHINGTON (AFX) -- After years of praying for strong payroll numbers each month, investors must adjust to the idea that a healthy market for workers could be unhealthy for financial markets. Back in the day, job creation was good for everybody: workers, bosses and investors. It showed a strong economy, which meant good profits and higher stock prices. But now job creation could be seen as a warning sign of inflation, which could mean higher interest rates and lower stock prices
The March nonfarm-payrolls report will be released Friday at 8:30 a.m. Eastern time. As it is every month, it'll still be the focus for economy watchers in the coming week. But this time, the focus will come through a different lens
"Jobs are important, but in this report average hourly earnings have taken on more importance," said Maury Harris, chief U.S. economist for UBS. The average hourly earnings figure is part of the monthly employment report, along with payroll growth and the unemployment rate
Harris is forecasting payroll gains of 225,000 for March, with average hourly pay rising 0.3 percent. He's pretty much in line with consensus on payrolls, while the survey says earnings will likely rise 0.2 percent, which is the average increase over the past year. In the past, wage pressures have been seen by the Federal Reserve as a major source of inflation. In theory, higher labor costs pressure employers to try to pass on those costs to customers. This time, however, wages have not been a major factor in rising prices. The labor market has been weak, while pricing power has been nonexistent for most firms operating in competitive markets
Whatever inflationary pressures are building, labor is not the cause. The blame goes instead to commodities, especially oil. Rather than leading inflation, workers are falling behind it. In the past year, average hourly earnings are up 2.5 percent, below the 3 percent rise in inflation. Benefit costs are up but still lag behind productivity gains
But that's about to change, Harris argued. The job market is strengthening, which should pressure employers to pay more. Already, unit labor costs have turned positive after falling for years
With the Fed on inflation watch, the Commerce Department's main inflation gauge could also get some attention in the coming week. While everyone on Main Street knows about the consumer price index, the economists inside the Fed prefer to use a different index to gauge inflation: the core personal consumption expenditure price index. It comes out Thursday as part of the personal income and spending report. There's no formal consensus for the core PCE index, but most of the economists who do forecast it are looking for another 0.2 percent increase for February, compared with the 0.3 percent gain in the core CPI. If the PCE index does come in at 0.2 percent, the year-over-year gain would remain at 1.6 percent, still within the Fed's comfort zone
There are plenty of other big numbers coming during the week
The Institute for Supply Management index usually gets lots of attention but could be ignored this time because it comes out after the payrolls report. Economists are looking for a decline to about 54.9 percent from 55.3 percent
The Commerce Department will issue its final estimate of fourth-quarter gross domestic product Wednesday. The survey looks for an upward revision to 4 percent from 3.8 percent a month ago and 3.1 percent in the first go-around. Higher gasoline prices could be taking a toll on consumers, at least in what they tell pollsters. The Conference Board and the University of Michigan will both release their consumer-attitude surveys |
