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ADP's estimate of September private sector job gains was somewhat stronger than expected (162K vs. 140K), adding to the growing list of stronger-than-expected numbers we have seen since late last July The chart of the Citigroup Economic Surprise Index, below, documents this. In this context, it's looking like the payroll report this Friday will also beat the relatively modest consensus of 115K private sector jobs. Even if the ADP number proves accurate, however, at this rate the economy can barely keep up with population growth. Things could be worse, but at least the economy appears to be holding its own and it continues to avoid any sign of recession. In my view, economic growth is likely to be in the range of 2-3 in the current quarter, and if that relatively disappointing pace continues, the market will end up being surprised again. 1.6% 10-yr Treasury yields and -0.9% 10-yr TIPS yields continue to be priced to the expectation that growth will be zero or negative for the foreseeable future.
4 comments:
Thanks Scott.
Bloomberg Q3 and Q4 2012 consensus estimates for US GDP are currently 1.8% and 2% respectively. So a "range of 2-3 in the current quarter" puts you at the more optimistic end of the spectrum. I very much hope you are right.
My main concern is that the below trend growth rate in the US is very susceptible to shocks, even mild ones. Meanwhile, the latest releases for the Conference Board Leading Economic Index (leading) and the Chicago Fed National Activity Index (coincident) suggest continued caution on the economic outlook.
Ben (UK based portfolio manager)
The data is very mixed when trying to predict whether it's bad enough to throw Obama out. The economy is weak by most measures although auto sales, ADP and ISM indexes would say we're not headed for a recession right now. Since unemployment is around 4% for people with a college degree or higher, I'd say the economy is good enough for Obama to be re-elected.
The US employment to population ratio is a sustained drag on the economy -- too few Americans are working for whatever reason -- until we see net job growth of at least 500,000 monthly, the story of employment in the US can only be described as dire -- fortunately, QE3 targets employment with new capital (albeit printed) for real estate financing and development, which will lead to new construction -- US manufacturing growth is irrelevant at this point, especially given that we are only seeing growth in subsidized manufacturing firms -- I expect most heavy manufacturing, ex-defense, to leave the US over the balance of the 21st century -- I am more optimistic about domestic energy and other commodities (including food), construction, technical education, tourism, and research and development -- in the meantime, the US desperately needs to cut real government spending by at least 40% during the coming decade -- accepting the "fiscal cliff" would be a step toward that goal in my opinion...
PS: Main Street USA will eventually emerge from the ongoing economic crisis more "lean and mean" than ever -- workers along Main Street have lost vast wealth over the past four years -- conversely, the universe of government employees and pensioners, Social Security recipients, the military-industrial complex, and unionized workers have experienced essentially none of the economic crisis to date -- we along Main Street will likely "take no prisoners" from Federalists as we begin to emerge from the economic devastation around us -- decoupling Main Street from Federalism is the wisest, most humanitarian decision to come out of the US Federal Reserve since its founding in 1913.
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