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USA: Job report: Underlying strength
Fri, Oct 6 2006, 10:39 GMT
by KBC Market Research Desk
At first glance, the job market report was weaker than expected, as it showed that the US economy created just 51K jobs in September. However, the report was actually not as weak as it appeared - it had several signs of strength among the details, and as a consequence yields edged 7-8bp higher.
Firstly, the net revisions of +62K. The July and August figures were revised up to 123K and 188K from previously 121K and 128K, respectively. Hence, net job creation amounted to some 113K, which is quite close to expectations.
Secondly, the unemployment rate surprisingly dropped by 0.11 percentage points to 4.58%, as the household survey showed 271K new jobs added in September.
Finally, this report included an estimate of benchmark revisions for 2006. This revision is derived from state unemployment insurance (UI) tax records that nearly all employers are required to file. The purpose is to allow for systematic biases in the estimate of the payroll figures. BLS (Bureau of Labour Statistics) currently estimates that employment in March was 810K higher than earlier anticipated. This implies that the BLS will probably add 67.5K to payroll growth for each month from March 2005 to March 2006. Over the last 10 years, the annual benchmark revisions have averaged plus or minus 0.2 percentage points. Hence, this years estimate of +0.6 % is the highest in 10 years.
The very large estimate of the benchmark revision is interesting from several points of view. Firstly, we have been wondering why employment growth has been relatively low during this recovery and why the difference between the household survey and the establishment report (non-farm payrolls) has been so large. The benchmark revision gives at least a partial explanation of this. Secondly, while the benchmark revision does not affect the unemployment rate, it adds to the argument that pressures in the labour market are rather high.
Generally, although the latest figures do not change the picture that job growth has shifted into a lower gear following the slower economic growth in Q2 and Q3, the 3-month average payroll growth is more or less unchanged at around110K. Going forward, we still see payroll growth of around 125K as a fair level sufficient to keep the unemployment rate in check. Further, todays report showed the job market is still getting tighter (lower unemployment rate), which should not ease concerns on wage pressures.
Published on Fri, Oct 6 2006, 16:06 GMT
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