One of the important caveats within our Consumption Cannonball theme is that the transition to real income growth, from government subsidized income growth, will be difficult.
The numbers released this morning by the Bureau of Labor Statistics confirm our thesis that the private sector is not picking up the slack. Government employment fell by 159,000 in September while private-sector payroll employment continued to trend up modestly, increasing 64,000. This resulted in a net nonfarm payrolls decline of 95,000 in September. The private-sector increase missed expectations while the winding down of census workers and state and local level cutbacks exacerbated the decline in government payrolls. The private sector is clearly not picking up the slack and the underemployment rate, U-6, increased to 17.1% from 16.7% in August.
The labor market’s worse-than-expected performance in September supports slowing consumer spending and all but guarantees the FED will resume large-scale asset purchases sooner rather than later.
Three key takeaways from today’s jobs report:
- More QE is on the way
- Inflation will accelerate
- The outlook for sub 1% GDP growth in 2011 is looking more likely
- Interest rates to remain low through 2011
Lastly, the September report contained a preliminary estimate for the upcoming benchmark revisions showing 366,000 fewer jobs for the year ended March 2010 (30,500 jobs per month). This is not news – we are proactively prepared for the compromised nature of government data. The bottom line is that the labor market is not improving fast enough and QE is not helping Main Street.
Howard Penney
Managing Director
