Was Friday's Payroll Data "Perfect"?

by: David Andrew Taylor

Friday's payroll was "perfect", if you read the Dismal Scientist, a quote that I think made it onto CNBC immediately after the release. I believe that one of the analysts for DS is on the show during payrolls. I'm not on a DS bashing binge today, but since they had the balls to pretty much print what was said, I'll throw a stab at them. The title on the piece on their website is: August Payrolls: Doesn't Get Much Better ($$$)

Personally, I can see a lot of ways where it in fact DOES get much better. But, let's see how "perfect" the payrolls data really is. Here's a comparison of the rate of growth in consumption vs. the rate of growth in employment:

What you are looking at is the rate of growth in consumption and employment. Consumption is in blue and employment is in red. I like this correlation. It's more than just strong. I can see in this that there are some kind of movements within each that feed off of each other.

To really get a feel for what this is, let's ask ourselves a quick question: When you see the rate of growth go up in consumption, what drives that? Two things: Increases in the number of people getting paychecks, and increases in the amounts in the paychecks of those that have been getting paychecks. Hopefully that made sense. If there is an increase in the number of individuals being employed, those individuals are going to start consuming more and more, which will drive up consumptions. If there is an increase in overall earnings from year ago levels of those that are already employed, then you going to see an increase in the rate of growth in consumptions. Conversely, any decreases in both areas is going to do the same for consumption.

With that in mind, we see consumption still on a downslide with an ever so slight pause in the move down.... and I mean ever so slight. Average Hourly Earnings as well as Personal Income have both been heading much higher. Both tell me that since the rate of growth is increasing at a high rate for earnings and income, consumption should follow. Then there is the employment factor. As more and more are being employed, there is going to be more and more involved in the consumption factor. We're seeing a steady increase in the number of jobs added to the economy, and this will also have an increasing affect on the consumption levels. The number isn't exactly "exciting" me to the core, but it is holding up its end of the stick which will help drive up consumption.

Important to note is that I couldn't really see within the chart whether or not employment led or followed consumption. I believe it does both at different times, but mostly is about the same, {I'm talking (+/-) 1 to 3 months}. That makes sense if you followed the above paragraphs. Sometimes the creation of new jobs is going to lead to more consumption which will in turn lead to more job creation... and more consumption and so on. Likewise, there are times where consumption drew in a creation of more jobs. In all, I found the chart to be very helpful.

I think payrolls added a number that is in line with where our economy is at this moment, and adds a lot of weight to my economic thesis that we are about to see a very firm economy in the months ahead.... maybe even too firm. I also believe that consumption will begin to move higher in the very near future. That will in turn add more and more jobs. The elements of a strong economy are really building up steam. Gee... maybe the number really was "perfect".