The Atlanta Fed's macroblog provides commentary and analysis on economic topics including monetary policy, macroeconomic developments, inflation, labor economics, and financial issues.

Authors for macroblog are Dave Altig, John Robertson, and other Atlanta Fed economists and researchers.

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January 06, 2006

The Employment Report: On Average We're Just Right

I think it's fair to say we weren't expecting this one. From CNNMoney:

Hiring slumped in December though the economy created 2 million jobs for the second straight year, the government said Friday, in a reading that was mostly weaker than Wall Street had expected.

The economy created 108,000 jobs last month, compared with a revised gain of 305,000 jobs in November, the Labor Department reported. The December gain was the smallest of the year aside from September and October, when Hurricane Katrina slowed hiring.

Kash thinks the report is disappointing, but it's awfully hard to focus on that 108 number in isolation of the 305 number -- or to be very confident about what the next set of revisions will bring.  In any event, the people in the MSM Rolodexes seem pretty clear about what it all means.  Again, from CNNMoney:

... the revision to November job growth and the higher-than-expected wage growth could mean the Fed will raise rates at its meeting in March as well.

Anthony Chan, senior economist with JPMorgan Asset Management, said that he believes that overall the job report makes an end to rate hikes more likely.

"This report makes the Federal Reserve graceful exit from the policy arena a lot more palatable," he said. "It's difficult to argue that the Fed has much more heavy lifting left."

From Reuters:

Analysts said the latest jobs data meant odds were rising that the Federal Reserve was near ending the rate-rise cycle it initiated in mid-2004. The U.S. central bank has raised the federal funds rate 13 times to 4.25 percent.

"The report is probably a shade on the weak side and it increases the chance that the Fed is more likely to stop raising rates at 4.75 percent at the middle of the year, rather than going higher," said Cary Leahey, senior managing director at Decision Economics in New York.


"These figures suggest that growth is stable but not extremely strong," said Nigel Gault, head of US research at Global Insight, a consultancy. "These figures should add to the conviction in financial markets that the Fed will soon be able to stop raising rates. "

So, the Fed will be impressed enough to put an end to rate hikes due to "the revision to November job growth", or because the report was "a shade on the weak side", or because job "growth is stable but not extremely strong."  Sounds like a consensus.

UPDATE: Barry Ritholtz agrees with Kash: "Labor Markets Continue to Underperform." General Glut calls US job growth "amazingly weak."  pgl still frets that the employment-population seems stuck in the mud. Mark Thoma concurs that the labor market is "not as robust as would be expected in a recovery." But Calculated Risk suggests that growth for 2005 "seems solid."  And The Skeptical Speculator has this, from Reuters: "Overall, the employment figures imply a relatively strong hiring outlook."

Tim Duy breaks down what it all might mean for monetary policy. Michael Mandel maintains his lonely focus on wages in the tech sector, and likes what he sees.

January 6, 2006 in Data Releases , Labor Markets | Permalink


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Employment to population ratio still stuck at 62.8%.

Posted by: pgl | January 06, 2006 at 10:27 PM

Unemployment data is becoming less and less relevant. I don't think it is possible anymore to predict what the fed will do by looking at just this subset of data. Not so long ago, it was the busiest day in financial markets. Now, it is busy, but not the same intensity as it once was. Years ago (in the eighties) Merchandise trade was the big number. The press jumps on the number du jour and tries to infer a conclusion from it. It is clear that the US economy is still growing. Housing prices seemed to have cooled, and not burst. Inflation seems to be under control. Why not raise one more time and then step back?

Bernake will be in a tough spot. If he tries to show that he is an enforcer and inflation fighter by raising rates and sending a message, he risks going to far. I think that his advantage will be that he seems to be pretty plain spoken. If he can be clear, and not as cryptic as the present chairman, I think he will be better off.

I also think that this terrorism and war thing still make a big difference, even though markets are used to them. People of the world put their money in US dollar denominated assets because of an underlying fear of putting them anywhere else. This will artificially put a ceiling on interest rates. Ironically, we always think of wars as inflationary. In this case, the end of war may drive interest rates higher.

Posted by: jeff | January 08, 2006 at 09:49 PM

jeff -- I agree with the comment about unemployment, but would not expand that as a blanket comment on the value of labor market signals -- payroll employment in particular. But..

pgl -- The 200 million jobs question: Is that starting to look like an equilibrium?

Posted by: Dave Altig | January 09, 2006 at 01:55 PM

But we do not see much comment about the apparent acceleration of average hourly earnings as the annual growth rate just rose above 3.1% and the three month growth rate was 3.75%.

Yes, because of higher energy prices real wages are still not growing, but the acceleration of houly earnings may influence policy much more then the unemployment rate.

Wage growth is on a significant upward trend. Wiil the Fed assume that productivity will continue to offset it or become worried about the inflationary impact?

Posted by: spencer | January 09, 2006 at 02:48 PM

spencer -- I won't speak for the Fed as a whole, but will note that unit labor costs are very much near the top of the list of inflation indicators taken seriously by those of us in the monetary policy business. Any protracted increase in wage growth relative to productivity growth will almost certainly be taken seriously. (It is worth noting, however, that some increase in unit labor cost growth was anticipated, as the levels we had been experiencing were historically low.)

Posted by: Dave Altig | January 10, 2006 at 11:35 AM

labor costs are going to rise. part of that is that the outsourcing of jobs to other countires has left us with jobs that require specialized skills to do. companies have to pay for specialized skills.

Posted by: jeff | January 10, 2006 at 04:57 PM

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