02 02 07 Weaker Payrolls, Factory Orders, NAPM and Inflation
GDP is old news already. Payrolls came in at a light +111K vs expectations of +155K and an upwardly revised December +206K (was 167K) and November +196K (was 154K). This is a significant shortfall, though with the sizable prior month revisions who is to say that this figure won't also be revised up (or down) by 25%? The Nov. and Dec. revisions added a net 81K jobs and provides another reason for the somewhat stronger Q4 GDP advance from yesterday. But perhaps lost in the headline story will be that weekly earnings actually declined! This came about because the hourly earnings increase of $0.02 (price) could not overcome the decreased hours worked (volume) and reduced overtime (mix). Less money in the pocket books this month. Also unlikely to be mentioned were apparent trend reversals in the household survey - there was a significant increase in those unemployed (trend was down) as well as a large increase in those 'not in labor force' (trend was down). One can have endless debates about whether the establishment or household survey is 'better' but at the least the household survey sometimes points to developing trends sooner.The ECI and ECRI both showed a lessening of inflationary pressures and in their report, the ECRI notes the drop in the index was led mainly by disinflationary moves in measures of jobs, home loans, interest rates and vendor performance in part offset by higher commodity prices. We remain cautious on inflation gauges as we feel they do not correctly capture the true cost of living. Yesterday we also heard that the savings rate for December was negative and that for all of 2006 was -1%, worst showing since the Depression and a continuation and acceleration of the dissaving trend. Eventually bills must be paid and plasma TV's left on the shelf.
The Chicago ISM fell below 50 again, the second time in three months. We will see if this is reflected nationally next week or if the auto industry has had an excess effect on this measure. The factory orders data released today seem to indicate it will not, having come in ahead of expectations at +2.4% (vs 2.0%). Non-defense capital goods advanced a strong 9.6% but this figure is very volatile while separately December durable goods were revised down to a +2.9% gain from 3.1%.
Kind of a mixed bag, no? Were it not for the factory orders we might be inclined to read more into the payrolls and ISM data; perhaps it is best to say Q4 may have borrowed from Q1.
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