Friday, September 1, 2017

Quote of the Day: Jobs clarity "may prove elusive" for the next few months...

Economist Carl Riccadonna called today's jobs number perfectly. Yesterday I read his preliminary analysis where he pointed out August's strong tendency to miss consensus expectations. He also pointed out the tendency for the number to be revised upward in subsequent months.

In his update today, he essentially acknowledged the above, but also points out that Hurricane Harvey will no doubt do a number on employment data for awhile going forward. We agree. In fact, we expect that the incredible run of sub-300k weekly jobless claims will come to an end solely as a result of Harvey's impact on the folks directly affected. Of course that will be a blip in a key data point that we'll have to discount due to the unique circumstances causing it.

In terms of the Fed, our economic assessment (as we've illustrated) suggests that policy will indeed be a bit less accommodative going forward, as Riccadonna points out below: 

The idiosyncrasies endemic to the August jobs report emerged for yet another year. Consensus overestimated last month’s employment increase for the seventh consecutive year — and to an extent, that was in-line with the average miss over the past 10 years.
However, August payrolls have also exhibited a tendency to be revised higher subsequently, and to a significant degree, so it is entirely possible that the payroll increase of 156,000 could ultimately come close to 180,000, if not 200,000 for the month.
In light of these tendencies, many analysts will be inclined to disregard some of the implied weakness in the August results. However, clarity may prove elusive, as the next few jobs reports, along with many other data series, will be vulnerable to distortions related to Hurricane Harvey.
Even so, Fed officials are not likely to be dissuaded from continuing to normalize policy in the current environment because, as measured at midyear, economic performance was solid. GDP growth was well above trend and reaccelerating over a multi-quarter period, and so too was the corporate profits trend, which suggests that private sector resilience is increasing.
Market participants will look to a slew of relevant Fedspeak next week for confirmation that policy makers are undeterred by recent events, including Hurricane Harvey and looming concerns about the debt ceiling.

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