Fiscal Cliff Is Holding Back Hiring

Friday, 05 Oct 2012 12:10 PM

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INDICATOR: September Employment Report

KEY DATA: Nonfarm Payrolls: Up 114,000; Unemployment Rate: 7.8 percent (Down 0.3 percentage point)

IN A NUTSHELL: “The labor market is in better shape than many believed, no matter what the politicians might say.”

WHAT IT MEANS: In this penultimate employment report before the election, the surprises were all over the place.

The biggest one came in the unemployment rate number, which declined sharply. This was the first time since January 2009 that the rate was below 8 percent, and the drop was due for all the right reasons: The labor force surged and the number of employed skyrocketed.

Editor's Note: 5 Signs Stock Market Will Collapse in 2013

While it would not surprise me if the rate moves up in October, a 1.8 million reduction in the number unemployed over the year makes it clear that significant progress is being made.

On the payroll side, the gain was disappointing only in the sense that we were seeing stronger growth during the summer. Major upward revisions to July and August indicated the economy was adding about 160,000 new workers a month.

And that raises an interesting question: Was the softening in job gains a consequence of a slowing economy or the growing concerns about the fiscal cliff?

With consumers hitting the stores and dealerships, while CEOs are expressing worries about the end of the year, it is likely that it is the wackos in Washington, not a weakening economy, that is holding back hiring.

As for the September numbers, cutbacks at vehicle and computer manufacturers were the major restraints. On the positive side, government is adding workers again, though local governments are still in downsizing mode.

Moderate gains in wages and hours worked bodes well for income.

MARKETS AND FED POLICY IMPLICATIONS: Yesterday, I warned there could be a surprise in the numbers. I thought we would get it on the payroll side, as we were due for a greater increase than we had been seeing given the economic numbers.

We did get a surprise there, but it was in July and August, where the gains were much better than initially reported.

What was eye opening was the sharp decline in the unemployment rate. Undoubtedly, there will be some who say the drop was politically manipulated.

Editor's Note: 5 Signs Stock Market Will Collapse in 2013

Hogwash. It is actually not that unusual for the rate to move by 0.3 percentage point in a month. For example, in the period from May 2008 to April 2009, the rate changed by that amount or more seven of the 12 months. Over the last 10 years, there has been a monthly change of at least 0.3 percentage point 12 times.

In other words, at least once a year you should expect that large a move. The last time it happened was 20 months ago, so we were overdue. That is just the reality of the data.

As I said yesterday, the data are what the data are.

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