August Jobs Report
September 8th, 2007 by John BrasherThe AUG non-farm payrolls report showed a loss of 4,000 jobs. That might not seem like much, but 1) it was the first negative month in four years, and 2) it was expected that as many as 155,000 new jobs would be added. Thus viewed, AUG showed a rather breathtaking shortfall.
Housing-related industries have lost at least 80,000 jobs this year, and Countrywide (CFC) will itself cut another 10,000 to 12,000 jobs. In fact, the AUG jobs report probably will, more than any other single factor, weigh in the Fed’s decision to cut the fedfunds rate from 5.25%, should they decide to cut it at the September 18th FOMC meeting.
The AUG jobs shortfall is an “economic earthquake” that will dramatically change the Fed’s perspective on the economy, and data to come should start to reveal “how big the ripple effect will be on the economy,” according to Doug Roberts, Channel Capital Research, referring to expected oncoming job losses. Political pressure is mounting on the Fed to cut the fedfunds rate (it only cut the discount-window rate, where non-banks and weaker banks borrow). Federal Reserve Governor Frederic Mishkin recently said that the Fed possesses the “tools to limit the negative effects on the economy from a house-price decline.” Feel better, now?
I for one certainly don’t buy into the notion that the Fed is an all-seeing body (like the Greek gods of antiquity) that can micro-manage human affairs. Notice that Mishkin is not talking about the subprime mess; he specifically limited the Fed’s ability to help to the “house-price” decline. I’m not trying to be niggling, but Mishkin does well to carefully limit his words. Economic tides are too big to be contained by central bank policies, though central bank actions can obviously help or hurt.
A cutback in consumer spending has not yet appeared in corporate earnings. What I really want to see are September jobs reports and Q3 corporate earnings. We’ll have a better handle on things then. If the economy and the credit crunch are in fact derailing consumer spending, then it has to show up in corporate earnings.
DUE NEXT WEEK:
Several reports for AUG are due next week: retail sales, business inventories and industrial production. All are expected to be up 3-5% over July, and shortfalls will be ugly.
September 8th, 2007 at 9:29 pm
I believe that the reduction in consumer spending hasn’t started playing out yet. It could happen rather rapidly when the huge pool of discretionary income that so many folks have become accustomed to pulling from their homes is no longer available. People have treated their homes like an ATM machine, or a second job. In a lot of markets appreciation will drop off considerably, and in other areas they will experience a drop in home values. The adjustment of ARMS’s will add to the fire by excellerating foreclosures and further driving prices down in some markets. I doubt it will affect the luxury market as much, except to the extent that some luxury market folks are business owners that rely on consumer spending. A lot of the money that has been spent the past several years came from home equity, and it appears that pool of capital is going to be drying up considerably.
September 9th, 2007 at 11:26 am
Agreed. I think the subprime/housing mess will hurt the economy and agree also with John Mauldin that we’re headed for a muddle-through economy. I don’t see a major recession, though anything is possible. The slowing economy will at some point send the bull packing, though.