Friday, October 05, 2007

Job Market Still Healthy, Americans' Wages Growing Twice Inflation Rate

- The Change in Non-Farm Payrolls for September was 110K versus estimates of 100K and an upwardly revised 89K in August.

- The Unemployment Rate for September rose to 4.7% versus estimates of 4.7% and 4.6% in August.

- Average Hourly Earnings for September rose .4% versus estimates of a .3% gain and a .3% increase in August.

BOTTOM LINE: US employment accelerated in September and revised figures for August showed an unexpected gain, easing recession concerns and making the Fed less likely to cut interest rates again, Bloomberg reported. Revisions added 118,000 jobs to payroll numbers previously reported for July and August. Service industries, which include insurance companies, banks, restaurants and retailers, added 143,000 jobs last month. Moreover, average hourly earnings are growing at a very strong 4.1% year over year vs. the 20-year average of 3.2%. The 10-month moving average of average hourly earnings is 4.01%, and 1998 was the only year during the entire 1990s expansion that exceeded current levels. Furthermore, average hourly earnings are growing more than twice the CPI's most recent rate of 2.0% year over year. Finally, the unemployment rate's 10-month moving average is 4.5%. There have been only two other periods since the mid-1950s during which it has been lower. Job creation of around 75,000-125,000 is perfect for the stock market, in my opinion. The 10-year yield is rising 15 basis points on today's news as the imminent recession thesis loses further credibility. Fed funds futures now imply a 53.2% chance of a 25-basis-point cut at the upcoming meeting, down from 72% yesterday and 84% one week ago. A very healthy job market, record stock prices and a relatively small price decline in nationwide home prices, after historic gains, are the primary reasons that Americans' net worth hit another record high during the second quarter. I continue to believe the job market will remain healthy over the intermediate-term without generating substantial unit labor costs increases.

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