If Jobs Data Spell Relief, Pass the Alka Seltzer: Caroline Baum
New York, Dec. 3 (Bloomberg) -- Today's employment report for November supposedly offered some ''relief'' to the bond market. Relief from what?
Relief from the unrelenting pace of job creation, which at 234,000 in November is still too strong to keep the unemployment rate from falling further?
Relief from the shrinking pool of available workers, an ongoing situation that has risen to the fore as an intermediate policy objective for the Federal Reserve?
Relief from the tight labor market that is bolstering consumer confidence and raising the ''quit rate'' -- job leavers as a percentage of the unemployed -- to a business cycle high?
Plop, plop, fizz, fizz. Pass the Alka Seltzer, please.
A few facts first. The civilian labor force has grown by 1.2 percent in the last 12 months, a touch faster than trend but close enough for government work. Employment, as measured by the household survey, rose 1.5 percent in the past year, paring the unemployment rate by 0.3 percentage point to 4.1 percent in November. (The unemployment rate is derived from the Bureau of Labor Statistics' survey of households. The payroll numbers are a product of a survey of establishments.)
Employment growth would have to dwindle to 135,000 a month or less to prevent the unemployment rate from falling further.
Now, I'm all for full -- and fuller -- employment. Give a man a job, and you give him self-esteem in addition to his daily bread.
Salmon Run
Unfortunately what I think has absolutely no bearing on anything. It's what Fed chairman Alan Greenspan thinks that counts. And the last we heard, the good doctor had committed himself to swimming upstream against the pool of available workers.
That pool, which includes the number of unemployed plus those who are not in the labor force (you have to be in it to be classified as ''unemployed'') but would like a job, was 65,000 higher at roughly 9.5 million in November than in October, which was an all-time low for the unadjusted data series.
What's 65,000 among employers? It's too little for Greenspan, apparently, so it should be too little for the bond market to feel any lasting relief from today's jobs report.
Before he became fixated on the reserve army of unemployed, which made its policy debut in a statement following the Nov. 16 Fed meeting, Greenspan was known to have an affinity for the ''quit rate.'' When the economy is good, employees know it and are apt to up and leave for happier hunting grounds and better pay.
Back in the days when the idea of a ''jobless recovery'' was in vogue (circa 1992 and 1993), workers lived in fear of corporate downsizing. If they left a job, it was because someone showed them the door.
Quitters Rising
In early 1992, the quit rate dipped to 9.5 percent of the unemployed. There wasn't any real improvement in 1994 either despite a red-hot economy. An increased willingness to leave a job emerged in the last three years, with the quit rate rising to a 9-year high of 14.6 percent last month.
For the U.S. Treasury market, today's report clearly pushed the Fed farther into the future. No doubt the same folks who were short early in the week when an inter-meeting rate hike in January was all the buzz, are now long for the Fed-free rally. Interestingly, the December and January fed funds futures have shown little fluctuation in recent weeks, once they adjusted following the Nov. 16 rate increase.
In fact, the December fed funds futures contract has consistently been trading below the 5.5 percent target funds rate. Clearly the overnight interbank market expects none of the year-end financing pressure anticipated in other markets -- and even sees an overabundance of liquidity.
Yoohoo, NAIRU
Another soothing aspect of today's employment report was the smaller-than-expected 0.1 percent increase in average hourly earnings. The year-over-year increase slipped 0.1 percentage point to 3.6 percent, within the past year's 3.5-3.9 percent range.
This is only comforting if the Fed is waiting for that beast erroneously known as wage inflation to emerge before it lowers the boom again. With Alan Greenspan endorsing the views of some of the more doctrinaire Fed governors, such as unreconstructed Phillips-Curve advocate Larry Meyer, wages aren't a marker. Under the new operating procedures, the unemployment rate per se is sufficient justification for the Fed to act.
That was the view expressed by Meyer on Tuesday. Theorizing that the non-accelerating inflation rate of unemployment is now 5- 5.25 percent, Meyer said that once the unemployment rate falls far enough below the NAIRU, ''it would be prudent to return to a more normal responsiveness of interest rates to further declines in the unemployment rate.''
In Meyer's judgment, we are already there.
''It is clear to us that regardless of the behavior of wages or inflation, as long as the unemployment rate or the pool of available labor continues to decline, Meyer will be arguing for higher interest rates,'' write Bear, Stearns & Co. economists in this week's Global Spectator.
Hopefully the chairman will clarify where he stands on the issue. Unless Greenspan returns to his New Era themes, the employment report should do nothing to alleviate the bond market's sour stomach. |
