Monday, August 6, 2012


Friday’s payroll employment report wasn’t weak enough to justify another round of quantitative easing by the Fed. Nor was it strong enough to take QE3 off the table. So the FOMC made the right decision last Wednesday, i.e., to talk about doing WIT (Whatever It Takes), rather than doing it. What will they decide to do at the September 12-13 meeting of the FOMC? Probably more of them same, i.e., keep talking about doing something.

Over the past 12 months, payroll employment gains have averaged 153,170 per month. That pace is likely to continue over the next 12 months. There are few reasons to expect otherwise, with the exception of the dreaded fiscal cliff. In this scenario, the Fed might feel compelled to implement QE3 as the only policy response available since fiscal policy would be gridlocked. This, then, is a good reason for the members of the FOMC to hold off on QE--even if employment remains lackluster over the rest of this year--until they see how Congress deals with the fiscal cliff between now and yearend!

While July’s payroll gain was better than expected, the overall report confirmed that the labor market remains challenging. The one bright spot is that the YRI Earned Income Proxy rose 0.2% during July to another record high, following a gain of 0.7% during June. It is simply aggregate weekly hours times average hourly earnings in total private industries. It is highly correlated with private industry wages and salaries in personal income. That could be a good omen for retail sales and overall consumer spending in coming months.

Other employment indicators confirmed the slow pace of improvement in the labor market. Most heartening is that initial unemployment claims rose just 8,000 to 365,000 during the last week of July after falling 31,000 the previous week. However, the weekly data have been especially volatile in recent weeks. On the other hand, the Monster Employment Index of online job ads fell 6 points during July to 147. However, it remains on a slow, but not so steady upward trend.

Today's Morning Briefing: Thanks, Guys! (1) Mario, Ben, Mariano, Alan, Bill, and Richard. (2) The equity cult is dying again. (3) Earnings driven by global GDP. (4) ECB’s mandate is to avert euro collapse. (5) Draghi sets stage for QE in 2-year notes. (6) Spain needs more Sangria. (7) Bernanke talks the talk. (8) Krueger adds two decimal points to jobless rate. (9) Still targeting 1450 on S&P 500. (10) Sector neutrality still makes sense. (11) Fiscal cliff might delay QE3. (12) Wages and salaries at new record high. (13) “Trishna” (+ +) and “To Rome With Love” (+). (More for subscribers.)

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