When is a low payrolls number not a weak payrolls number?
This is a question that is becoming increasingly important in the United States for the simple (but complicated) reason that there are three structural problems with interpreting the employment report figures:
- There is the issue of whether skilled and semi-skilled labor is available to fill vacant positions. The suggestion in the detail is “No Vacancy" rates and the duration of job vacancies are high. That means the payrolls may be kept by a lack of available talent, meaning that a lower payroll number is actually indicative of a stronger employment report.
- There is the fact that most economic data is being revised higher over time in the United States. So, the number may well be doubled.
- There is the structural change in the way that we work. The rise of flexible labor and self-employment and contract work in particular is in fact making a mockery of the labor statistics. Statistics, which seem to best reflect the working practices of the 1950s and not those of today. Employment, hours worked, earnings and productivity are all thrown into confusion by the modern way of employing people. These changes in the way that we work also change the relationship between employment and consumption and saving, adding to the confusion.
I think we will get a labor report that is OK. Non-farm payrolls are expected to come in at around 150,000, which is in line with the market consensus. There are some strong Verizon strike effects to add in the data distortions.
Fact is that the average non-farm payroll number
remains in the 220,000 zone, which is of course good.
This is certainly consistent with the stronger consumer
that we are seeing and a level of domestic demand that gives upside risks to growth and may, in the context of growing inflation concerns, induce the Fed to act sooner rather than later.
From the Euro area we just got the final sentiment purchasing managers’ (PMI) data
which came in fine.
The European domestic economy is in fact just doing fine in a cyclical sense, but less fine in a structural sense, which by the way, ECB President Mario Draghi
pointed to during his press conference after the ECB left interest rates unchanged saying: "The economic recovery in the euro area continues to be dampened by subdued growth prospects in emerging markets, the necessary balance sheet adjustments in a number of sectors and a sluggish pace of implementation of structural reforms.”
In the PMI data, investors could do well taking notice that price gauges continued to move higher in May with average cost inflation accelerating to a ten-month high, mainly due to firming of commodity prices, notably oil, and increased staff costs at service providers. The problem here is that selling prices continued to fall with the pace of deflation. This is a negative for companies in both the manufacturing and service sectors.
Besides that, the Euro area monthly retail sales figures
on a yearly basis came in at a disappointing 1.4 percent, down from 1.8 percent the month before.
In Japan, Prime Minister Abe
surprised nobody by backtracking on his plan to consumption tax increase.
The issue is not about markets being surprised, but markets wanting to know what policy options are now going to be exercised.
The fabled three arrows of Abenomics seem to be little more than broken bits of kindling on the ground and certainly pose no lethal threat to the continuous economic malaise of Japan.
What comes next is a logical question.
So far, we can’t see a new fiscal package but we do we see further easing of central bank policy. The big problem is that we do not necessarily see anything new or innovative. Let’s hope there isn’t a “Black Swan” somewhere out there.
Etienne "Hans" Parisis
is a bank economist who has advised global billionaires and governments on the financial markets and international investments. To read more of his articles, GO HERE NOW.
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