Friday, April 06, 2007

Unemployment Rate Falls to 5-year Low, Hourly Earnings Rising at Almost Twice Inflation Rate, Payrolls Rise More Than Expected, Wholesale Sales Surge

- The Unemployment Rate for March fell to 4.4% versus estimates of 4.6% and 4.5% in February.
- The Change in Non-farm Payrolls for March was 180K versus estimates of 130K and an upwardly revised 113K in February.
- The Change in Manufacturing Payrolls for March was -16K versus estimates of -12K and an upwardly revised -11K in February.
- Average Hourly Earnings for March rose .3% versus estimates of a .3% gain and a .4% increase in February.
- Wholesale Inventories for February rose .5% versus estimates of a .4% gain and a .6% increase in January.
BOTTOM LINE: Hiring in the US rose more than forecast and the jobless rate unexpectedly fell to a five-year low, giving the economy a spark, Bloomberg reported. New jobs and higher wages are giving more Americans the means to spend, helping to shield the US economy from the weakness in housing. Upward revisions to the prior two months showed 32,000 more jobs were created than earlier estimated. Service industries, which include banking, insurance, restaurants and retailers, added 137,000 new employees. Overtime at manufacturing companies rose to 4.3 hours from 4.2 hours the prior month. “The continuing increases in employment, together with some pickup in real wages, have helped sustain consumer spending,” Fed Chairman Bernanke said last week. “Growth in consumer spending should continue to support the economic expansion in coming quarters,” he said. The economy has created about 2 million jobs in the last year. Challenger, Gray & Christmas reported this week that March job cuts fell -24.6% from year-ago levels. As well, the Monster Employment Index hit another record high in March. The current 50-week moving average of initial jobless claims has been lower during only two other periods since the 70s. The unemployment rate is a historically low 4.4%, down from 5.1% in September 2005, notwithstanding fewer real estate-related jobs and significant auto production cutbacks. The unemployment rate’s current 12-month average is 4.6%. It has only been lower during two other periods since the mid-50s. Furthermore, most measures of Americans’ income growth are now almost twice the rate of inflation. Americans’ Average Hourly Earnings rose 4.0% year-over-year in March, substantially above the 3.2% 20-year average. The 10-month moving-average of Americans’ Average Hourly Earnings is currently 4.07%. 1998 was the only year during the 90s expansion that it exceeded current levels. I continue to believe the job market will remain healthy over the intermediate-term without generating substantial inflation concerns. Considering many more investors are worried about economic growth than inflation, I suspect today’s news will provide a positive catalyst for US stocks on Monday. I still believe inflation is not at problematic levels and the 10-year yield, the best longer-term predictor of inflation, is nowhere near levels that would prompt an interest rate hike from the Fed. I continue to believe the Fed will remain on hold throughout the year, however a rate cut is much more likely than a rate hike.

Sales at US wholesalers increased faster than inventories during February, which may set the stage for a rebound in manufacturing in coming months, Bloomberg said. Sales rose 1.2% versus a -.9% decline the prior month. Moreover, goods on hand equal 1.15 months supply at the current sales pace versus 1.16 months in January. Inventories of autos fell 2.2% and supplies of computers/electrical equipment declined. I continue to believe significant inventory de-stocking will result in 1Q growth coming in substantially below trend. However, as companies gain confidence in the sustainability of the current expansion with lean stockpiles, inventory rebuilding should help begin boosting growth back to more average rates next quarter.

No comments: