Hope Springs Eternal

日期:2017/01/06

Hope spring eternal that the market will go down because the cattleist is not in power to increase service rates and other third term policies. But the article provides a good read on the kind of thinking that pervades the street that provides a cushion for the drift, especially with the rates back below 3% and 2.5 %.

"U.S. PREVIEW: Is Trump Rally Real? Jobs Report May Contain Clues"

By Carl Riccadonna and Yelena Shulyatyeva (Bloomberg Intelligence) 

There are three main focal points in the December jobs report: the potential for a post- election hiring acceleration, the durability of the recent drop in unemployment and clarity regarding wage pressures. Analysts will watch to see if the post-election surge in business confidence is translating into a more aggressive approach from hiring managers. If so, this could be a signal that improving sentiment is contributing to a virtuous economic feedback loop.



The drop in the unemployment rate, following an extended period of stability, is also garnering attention, including among Fed officials, as it could be a sign that labor shortages are intensifying. If this is true, then average hourly earnings should show a more pronounced bias to move higher as well. With the pace of economic output firming moderately in the second half of the year, there is little reason to expect a significant deviation from the recent hiring trend.

What to Expect:

• The consensus among economists polled by Bloomberg anticipates an increase in December nonfarm payrolls of 175k (170k private), modestly below the six- (205k) and 12-month (188k) moving averages. The payroll trend has decelerated over the past two years, but BI Economics expects the trend to at least stabilize, as economic conditions firm over the next few quarters. Improving economic sentiment could significantly impact hiring intentions, if elevated optimism endures. BI Economics projects a mildly above-consensus outcome, closer to 195k.

• Historically, December payrolls have shown little bias relative to the consensus forecast, thereby implying a modest upside risk relative to the result of the December ADP survey (153k).

• The seasonal adjustment of the payroll data turns negative in December, as recurring winter layoffs commence in a range of sectors. In recent years, the seasonal adjustment factor for December payrolls has averaged near -315k.

•Within the sub-industry details, analysts should be alert for an outlier result in the transportation/warehousing sector, or more specifically the even narrower category of couriers/messengers, which has benefited from seasonal shopping increasingly shifting online. The BLS has attempted to correct for this, but the structural trend is ongoing, so the series may yet be insufficiently adjusted. Retail and construction hiring are also prone to December irregularities.

• The median forecast for the unemployment rate projects a minor retracement in December (to 4.7% from 4.6% prior). The impressive descent from 10% to 5% unemployment from late 2009 through the end of 2015 gave way to an extended period of stability in the vicinity of 5%. The four-tenths decline over the past two months is less remarkable given that it coincided with a two-tenths drop in labor force participation. BI Economics also anticipates a one-tenth increase.

• Consensus projects no change in the length of the workweek, at 34.4 hours. An increase could help break the recent pattern of sluggish income growth by lifting aggregate hours worked, but this appears unlikely given that it has maintained the same level in nine of the last 10 reports.

• Average hourly earnings growth will provide important insight into whether the labor market is witnessing mounting wage pressures as the economy operates near full employment. The prior two months were whipsawed (-0.1% vs. 0.4% prior) by utility workers (-1.8% vs. 1.7%) being in high demand following Hurricane Matthew. As such, the December results may provide the first non-distorted reading for the quarter. Consensus anticipates a 0.3% increase in the month, which should enable the year-on-year growth rate to return to the post-recession high of 2.8%, logged in October. BI Economics estimates a more moderate 0.2% gain. Earnings averaged 2.1% in 2014 and 2.3% in 2015, so the recent acceleration poses a compelling signal that labor-cost pressures are finally intensifying.

• Annual revisions to household survey data: As per usual at the start of the year, the December jobs report will incorporate annual revisions into the household survey data. Seasonally adjusted data for the most recent 5 years are subject to revision.

Employment Scorecard

Wage Pressure Becomes Fed's Focal Point

The minutes of the December FOMC meeting indicated that policy makers were increasingly confident that labor market conditions had reached or were close to reaching the committee's maximum employment objective. "Most" participants shared this view, while "many" saw an increasing risk that an unemployment rate significantly undershooting the level consistent with full employment could compel the Fed to raise rates more quickly than currently anticipated. Furthermore, "several" noted that faster interest rate normalization could also impact the timeline for unwinding asset purchases conducted through QE.

Policy makers appear increasingly concerned that a potential overheating of the labor market could complicate their desire to normalize policy with gradual deliberation. As a result, the evolution of labor market conditions over the next few months will significantly influence officials' comfort-level regarding the current rate-hike schedule. The level of the unemployment rate and the wage pressure trend will be subject to particular scrutiny.

BI Economics is optimistic that firming growth prospects in 2017 will at least stabilize the pace of hiring near the average (188k per month) over the past year, which is well in excess of the natural growth rate of the labor force (roughly 100k per month). As a result, the unemployment rate is likely to remain subject to downward pressure, which will in turn magnify upward pressure on wages. BI Economics anticipates an acceleration in wage pressures in 2017, but given the lagged nature of inflation (including wage inflation), the pressure may take a bit longer to emerge.

The accompanying figure shows the recent pattern in average hourly earnings growth. Overall, average hourly earnings are up 2.5% over the past year, and the pace is poised to return to its cyclical high of 2.8% if the consensus forecast is correct. However, further acceleration may prove elusive in the near term, as the 3-month and 6-month annualized rates of change are running at similar paces (both at 2.4%). This suggests that there has been little acceleration-bias in recent months (despite the choppiness in October and November.)

The above figure further breaks out trends in the service- providing and goods-producing sectors, and the results show a similarly stable trend in the former and a marked deceleration for the latter. In fact, among the main underlying categories, of which there are 14, only seven are exhibiting an acceleration bias. These include non-durable goods manufacturing, retail, transportation, information services, professional/business services, education/healthcare and other services. The relevant conclusion is that while a select group of industries are witnessing accelerating labor costs, pressures are not yet widespread.

The diffusion of labor-cost pressures will be a critical trend to watch in the near term, particularly now that policy makers are increasingly confident that full employment has been achieved. Reading the trend has been complicated of late, in part due to temporary pay increases for utility workers following Hurricane Matthew. Unfortunately, the lack of clarity is likely to extend into early 2017, as minimum wage increases in 20 states take effect in January, likely resulting in further volatility in the average hourly earnings data.

To be sure, an increasing minimum wage does reflect rising labor costs — this will undoubtedly have a ripple effect into workers earning near the minimum wage — but the impact on the average hourly earnings data in the jobs report could temporarily exaggerate the trend. The risk is that this could lead casual observers to panic unnecessarily at the prospect of labor costs boiling over–just ahead of a subsequent moderation. Analysts and policy makers would be wise to remain patient during this short-term flare-up in 1Q.