Gluskin Sheff’s chief economist David Rosenberg poured cold water over the market’s enthusiastic response to the non-farm payroll data released on Friday.
By his reckoning, “while the numbers represented by far the best jobs performance of the year, much of the better-than-expected tally in nonfarm payrolls reflected the bounce in auto production as well as the distortion from the federal census workers”:
Combined, these two influences effectively “added” 100,000 to the headline number, so net-net, the consensus view of -325,000 was not as far off the mark as the market believed at first glance.
The reduction in the unemployment rate was largely due a sliding labour force, down 422,000, Rosenberg said.
EconomPic Data, in one of a series of posts on the data, produced an excellent chart illustrating the reduction in the labour force:
Moreover, Rosenberg argued, an uptick in employment in the auto industry further clouded the picture:
The auto sector added 28,200 to the industry payroll in July, which was the highest tally in 11 years. To show you just how big that really is, it is a 69% annualized surge. Normally, the industry, which is in secular decline, posts job losses of between 20,000 and 30,000 consistently, so this alone represented roughly a 50,000 swing. We estimate that there was about a 30,000 swing in the rest of the manufacturing sector due to the spillover from the current inventory adjustment in the motor vehicle industry. The 0.3% MoM increase in the workweek was also skewed by the 4.1% MoM jump in the auto sector.
As we mentioned, there have been large fluctuations in the federal government payroll too. After hiring a slew of Census workers in the spring, there were 57,000 layoffs in May-June and then we saw in today’s report that 12,000 federal workers were “hired” in July. Again, mathematically, this contributed about 20,000 to today’s headline number. In other words, and we have no intent on raining on anyone’s parade, there was about 100,000 non-recurring payrolls in that top-line figure. It may be dangerous to extrapolate today’s report into a view that we are about to fully turn the corner on the job market front.
Yes, the income number was also firm; average weekly earnings popped 0.5%, but again, this reflected the bounce in the auto sector as well as the 10.7% increase in the minimum wage to $7.25 an hour. Again, this is a non-recurring item and does not at all reflect an improvement in underlying income fundamentals in the personal sector. We had a similar bounce in the summer of 2008 when the minimum wage was last boosted.
Green shoots, whacked again.
Related links:
The employment report and the birth/death adjustment – A Dash of Insight
Not as bad, but not good – Floyd Norris / NY Times
The problem with non-farm payroll numbers – FT Alphaville