Interest Rate Roundup

Friday, March 09, 2007

Jobs report looks strong on the surface, but ...

The February jobs report was just released. It looks strong on the surface ...

* Overall nonfarm payrolls were up 97,000 vs. forecasts for a gain of 95,000

* The unemployment rate dipped to 4.5% from 4.6%, vs. forecasts for a stable reading

* Average hourly earnings rose 0.4% vs. a forecast for 0.3% growth. On a year-over-year basis, average hourly earnings were up 4.1%, vs. 4% a month earlier.

But -- BUT -- look behind the numbers and you find a few nits to pick (or at least, I do). For instance ...

-- There are two jobs surveys every month -- a survey of businesses and a survey of households. The business survey IS considered the more authoritative and comprehensive of the two. But the household survey was divergent enough this month that it deserves mentioning. It actually showed a change of -38,000, meaning the economy lost jobs. There has only been one other negative reading (-56,000 in 7/06) in the past couple of years.

-- Construction activity tanked 62,000, a sign the housing slowdown is starting to cause real problems. Government hiring (+39,000) had an outsized impact on total employment, not what you want to see in a healthy economy. Other big jobs gains were in non-cyclical categories -- like hospitals, nursing facilities, doctor's offices -- and low-pay categories like food service, and food and drinking establishments.

-- Total private hours of work slipped to 33.7, down from 33.8 a month earlier and the weakest since August 2005.

Bottom line: The report does have some warts. But in early trading, the market isn't showing much skepticism. Long bond futures were recently down 24/32, while 10-year Treasury yields were up almost 6 basis points to 4.57%. Stocks like the number as well, and so does the dollar. It'll be interesting, to say the least, to see how the day closes.


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