Job market weakness in today’s report has staggered the markets, and knocked long-term rates down to their post-November lows, 4.08 percent on the 10-year T-note, and 30-year, low-fee mortgages sliding below 5.75 percent.
December payrolls gained 1,000 jobs. Zilch, zip, nada. And, the 100,000 average monthly gain last October and November was revised down by a quarter. The impact of the news on the bond market reminds me of the scientist, exhilarated by the first Spirit images from Mars, who said this week, “I suppose it could have been better if an elephant had walked by the camera…”
The elephant marched on: the unemployment rate “improved” to 5.7 percent, but only because 309,000 people left the workforce in December. Quibblers point out that the payroll series is a large-business survey, and employment is really OK, just under the radar at small businesses and in new self-employment. To the limited degree that this reach for optimism is correct, it indicates a continuing downgrade in job quality: small business doesn’t pay as well, and new self-employment (a record 400,000-plus last year) often doesn’t pay at all (trust a long-time self-employed peddler on that last part).
The most important thing in today’s job data: the U.S. economy is not faltering–it is changing. The torrent of fiscal and monetary stimulus is still hosing us along the sidewalk. The newest (and last) stimulus is just kicking in: because tax-cut withholding tables were not issued until mid-2003, and the tax cut was retroactive for the whole year, most taxpayers are going to get a refund windfall this spring.
I recommend reading (at www.federalreserve.gov) speeches last weekend by Alan Greenspan (a first draft of his memoirs, still defending his failure as a bubble interceptor), and one Jan. 4 by a likely successor, Ben Bernanke. In clear and vigorous prose, Bernanke lays out 2004: downside economic risks remain; inflation is less a threat than the financial chattering class says it is (“Inflation is not simply low…it is very nearly at the bottom of the acceptable range…”); rising commodity prices are “almost certainly not” an indicator of an inflation acceleration ahead; and the fall in the dollar is to date not an inflation threat, nor any other kind.
Bernanke links the “persistent softness in the labor market” to productivity, and to corporate earnings: unit labor costs fell in Q2-’03 and Q3-’03 by a “remarkable” (no kidding) 3.2 percent and 5.8 percent annualized, respectively. For the moment, this productivity miracle is a boon to earnings. Since costs have fallen, markups are “well above historical average…supporting investment and equity values”; but, competition is “likely” to erode these margins, a further suppressant to inflation.
The current surge in corporate earnings is spawning equal surges in stock prices and in competition, the latter force producing the weak labor market and productivity in the first place. That competition spiral has been self-reinforcing, and still is. Productivity in the long run is a good thing, so long as your own, personal income is not sacrificed at that altar, nor the American aggregate income to global competition.
There is a lot of globalogna out there (“globalism” dates at least to Magellan, and before that, to the edges of the world as it was known), but the advent of electronic employment has accelerated the pace of competitive adjustment. Everybody talks about jobs moving overseas, but there is more to it than that – at a minimum, an immeasurable mountain of jobs now created overseas that never had a chance here in the first place. For the moment, we are borrowing and Fed-stimulizing our way into the post-bubble era, but the durability of this expansion has a long way to go to prove itself in competition.
Today’s job data pushed a rate-rise over the horizon, but the economy must falter for us to go lower. Kinda hope not. Refis are fun, but not that much fun.
Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colo. He can be reached at lbarnes@boulderwest.com.
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