There’s no pleasing some people.
You might have thought last week was a good one for data what with the ISM and payrolls numbers beating expectations. But it wasn’t, according to Jan Hatzius, the chief US economist at Goldman Sachs, and his team.
They can still find plenty to whinge, worry and whine about and reckon a case can be made that third quarter growth will be lower than they forecast a week ago. But then again Hatzius & Co have been calling for the Fed to launch QE2.
Here’s the revisionist history:
It’s been a good week for US economic data as several reports including this morning’s job market report -surprised significantly to the upside. However, these surprises reflect reduced expectations, perhaps to a large degree, as economists have marked down their outlook for the US economy. That outlook is far from cloudless.
- For example, while the manufacturing ISM index rose unexpectedly, the gap between the indexes for new orders and inventories almost disappeared. This points to eventual slowing and suggests that the upside surprise is mainly one of timing.
-The pending home sales index also defied most economists’ anticipations of a decline. In this case, the anticipations themselves were odd given how sharply the index had fallen after the homebuyer tax credit. The level of the index is still quite depressed.
-Today’s labor market report likewise showed more private-sector job increases than most had expected, especially when revisions are taken into account. This virtually rules out any FOMC easing at the September meeting, but it does not alter the fact that private sector payrolls are on a path comparable to those of the last two “jobless” recoveries.
This final point is worth exploring a little further as it has been picked up by other economists including Roubini Global Economics:
While the August employment report surprised consensus on the upside, revisions to previous data showed that the labor market developments in July were significantly better than previously estimated. This implies that labor market conditions actually worsened in August. The job gain of 60,000, excluding Census hiring, was below the 89,000 gain in July, and the decline was driven by a slowdown in private payrolls—including the first decline in manufacturing payrolls in 2010. The pace of job creation remains well below the levels needed to keep the unemployment rate from rising.
So a jobless recovery? Hatzius & Co think so:
However, despite this better-than-expected news, it is clear that US businesses remain in a cautious mood when it comes to staffing. As shown in Exhibit 4, private-sector payrolls are still following the “jobless” track of the last two business cycles rather than the much more robust template of earlier recoveries.
In any case, not all the data that came out last week was positive. There was a dismal construction report, says Hatzius & Co, that ws ignored by the market. Apparently this has the most direct bearing on the real GDP “bean count” (alongside the monthly construction report) and it wasn’t good.
Hence, since consumption was only modestly better than expected, a case can be made that third-quarter growth might actually be lower now than we thought a week ago despite all the upside surprises. For now, we are content to leave it at 1.5 per cent, as potential errors are not too imbalanced.
Related link:
Final thoughts on the payroll numbers – FT Alphaville