Today, the US Labor Department reported the economy added 110,000 payroll jobs in September, after posting an 89,000 gain in August. The consensus forecast was 100,000, and my published forecast was 110,000.
| Peter Morici is an economist and professor at the Robert H. Smith School of Business at the University of Maryland. He is a recognized expert on international economics, industrial policy and macroeconomics. Prior to joining the university, he served as director of the Office of Economics at the US International Trade Commission. |
The grip of the subprime crisis is apparent. In the third quarter, jobs growth was 99,000 per month, at bit less than is needed to keep unemployment from rising. The economy grew at a decidedly slower pace in the third quarter than the 3.8 percent posted in the second quarter. Something in the range or 2.5 percent, or a bit less, is likely for the third quarter.
Construction shed 14,000 jobs, reflecting continuing weakness in residential construction industry. Jobs growth in nonresidential and infrastructure components was mixed. Nonresidential building construction added jobs but other components, generally, fell off.
Manufacturing shed 18,000 jobs, despite the much advertised surge in exports. Imports from China continue to grow as the Peoples Bank of China continues to intervene heavily in foreign exchange markets to maintain a crawling yuan peg against the dollar.
India, Brazil, Russia, and several other Asian economies follow similar currency strategies, frustrating efforts to undo global trade imbalances, significantly reduce the U.S. trade deficit, and restore some 2 million manufacturing jobs lost to currency manipulation and trade protectionism over the last seven years.
Overall, manufacturing has lost about 3.3 million jobs since 2000. Foreign trade protectionism is likely responsible for about 2 million of these lost jobs, and productivity growth is responsible for the rest.
The unemployment rate was rose to 4.7 percent in September from 4.6 percent in August. However, these numbers belie more fundamental weakness in the job market. Many more adults are sitting on the sidelines, neither working nor looking for work, than at the beginning of the decade. Factoring in these workers raises the unemployment rate to about to 6.5 percent.
Wages increased a moderate 7 cents per hour, or 0.4 percent in September. Moderate wage and labor productivity growth should help keep core inflation in check, and this should help abate Federal Reserve concerns about core inflation, as it navigates the fallout from the subprime and housing crises.
Rising energy and commodity prices do threaten to reignite inflation; however, with wages unlikely to set off an inflation spiral, the Federal Reserve will continue to focus more on restoring stability to credit markets and housing sectors. The risk of recession should prompt the Federal Reserve to cut interest rates further.
The stock market came through the subprime crisis quite well. Large U.S. corporations continue to profit from investments in rapidly growing in Asian economies. The weaker dollar pushes up U.S. exports and corporate profits from domestic operations, and makes U.S. stocks more attractive to foreign investors. Overall, stronger financial conditions are improving and stocks should continue to rally. The Dow should breach 15000 in early 2008.
Week of October 8
Wholesale Inventories - Aug 0.3% 0.2
Wholesale Sales 0.4 0.1
Export Prices - Sept 0.2% 0.2
Import Prices - Sept 1.7% -0.3
Import Prices, ex petroleum 0.1 -0.1
Trade Balance - Aug -$58.1b -$59.2
Treasury Budget -- Aug $95.0b -117.0
Initial Jobless Claims 309k 317
Retail Sales - Sept 0.4% 0.3
Retail Sales (ex autos) 0.5 -0.4
New Vehicles and Parts -0.1 2.8
PPI - Sept 0.5% -1.4
Core PPI 0.1 0.2
Business Inventories - Aug 0.4 0.5
Mich Cons Sentiment - Oct (p) 87.0 83.4
Week of October 15
Net Foreign Purchases - Aug $80.0b 19.2 (line 19, Treasury Report)
Industrial Production - Sept 0.1% 0.2
Capacity Utilization - Sept 82.3% 82.2
NABH Index - Oct 21 20
CPI - Sept 0.2% -0.1
Core CPI 0.2 0.2
Real Earnings - Sept 0.1% 0.5
Housing Starts 1.300m 1.331m
Building Permits 1.310m 1.307m
Leading Indicators - Sept 0.2% -0.6
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