Chandler on jobs and other links

By Edward Harrison On Aug 6, 2010

The recovery has weakened considerably since the end of last year. Much of this is due to the fading impact of government stimulus and inventory adjustments. See the note this morning from Comstock Partners "Faltering Recovery." So the employment data are crucial.

The Employment Situation Summary is due for release at 830ET – in thirty minutes. Marc Chandler takes a rather bullish approach. He says this about the upcoming release:

Today’s US jobs data is only focus ahead of the weekend. The data that economists use to help forecast this volatile series, like the ISM reports, Challenger survey, and the ADP report were generally supportive. The one important offset was the weekly initial jobless claims rose during the survey week. As is often the case, it seems likely the real issue is expectations. Strong private sector jobs growth in March and April (158k and 241k respectively) were outliers. The 3-month average of private sector job growth is 119k, but this includes April’s jump. The last two month average is 58k and the July reading is expected to be well above this. The headline figure though is going to be skewed by the census workers. However, the risk is that the market underestimates these and there may be some impact from the state and local governments, most of which began new fiscal years July 1 and new austerity measures may have led to additional job losses. The risk then is the headline figure is weaker than expected and while private sector jobs may be better than expected. The unemployment rate is a function of the ebb and flows of the labor force participation rate. However, the sluggish jobs growth is not sufficient to absorb even the normal growth of the labor market. On the other hand, other components of the labor market like the length of the work week and earnings are expected to recover form the weakness in June. Recall that given the size of the US work force a 0.1% increase in the work week is tantamount to the output of more than 300k workers.

If this assessment is generally accurate, then the case for renewed asset purchases by the Fed would seem to lessen. Both ISM reading were above 50, showing an expanding economy. US Treasury yields and mortgage rates are already near record lows as is the spread between them. The lack of new mortgage bonds have contributed to disruptions in the market and more purchases of MBS by the Fed would not be helpful. News wire interviews with primary dealers suggest many have told the Fed that they do not want the Fed to resume MBS or Treasury purchases.

Let’s see where we get to. Below are the links including an interview I did with the guys over at Chaos Theorien to lead in. Enjoy.

Edward