NFP Data Reflect a Slowing Economy

by: Barry Ritholtz

Nonfarm payrolls increased 111,000 last month. December was revised upwards to a very respectable 206,000 (from 167,000), while November was upwardly revised to 196,000 (from 154,000).

Both of these numbers reflect greater than population growth job creation. Unemployment edged up to 4.6% from 4.5%. The workweek fell slightly from 33.9 to to 33.8 hours; Total hours worked slipped (0.1%). The manufacturing sector's long slide continued, falling 12 minutes to 40.8 hours; Factory overtime also declined.
There were a few other standout issues in the NFP worth exploring more: First up, the general economic slowing, despite the reported 3.5% GDP. Rex Nutting observed:

The two most important indicators for January have now flashed a warning sign in the direction of the Federal Reserve. With the Institute for Supply Management index falling below 50% and the job market weakening, the latest data show the economy downshifting as 2007 began. (But it's only one month).

This is noteworthy, because ISM leads GDP.

The 2nd issue is the still elevated Real Estate related jobs. Peter Boockvar of Miller Tabak makes the interesting observation that:

One area of the payroll data today that I want to point to is in Real Estate. I pick this industry b/c it has been such a big driver of growth since the end of the last recession, particularly in residential RE which of course is experiencing a downturn in construction, sales and subprime mortgages.The decline in residential RE and its subsequent impact on consumer spending is the basis of my bearishness as many of you know.

The RE subindex within the RE and Rental and Leasing section in today's data reveals a RECORD # of people employed. This area doesn't include finance jobs such as lenders and mortgage brokers. It includes lessors of residential and commercial RE, RE agents and brokers, RE property mgr's and appraisers. My point is that outside of construction and subprime co's, the industry is still betting on a bottom in residential RE and continued strength in commercial.

All told, this reflects a slowing economy. The Real Estate sector is staffed for a turnaround. I suspect they may be premature.

Bureau of Labor Statistics
of the U.S. Department of Labor, February 2, 2007

Analysis: Labor market weak, despite revisions
Rex Nutting
MarketWatch, 9:01 AM ET Feb 2, 2007