Via CalculatedRisk comes Reassessing Hard Landing Risks written by David A. Rosenberg of Merrill Lynch. I’m calling David a bear as he is not buying all the Pollyanna stories as to how great the U.S. economy is doing.
There is a lot of material here but I especially liked his comments about the labor market:
In fact, when we canvassed investors as to which statistic it was that altered their perceptions to such a degree, the vast majority said it was the drop in the January unemployment rate to 4.7% from 4.9% – the laggiest of the lagging indicators. Never mind that the entire decline was due to part-time youth unemployment sliding (in a sign of seasonal maladjustment), or that the labor force shrank for the third time in the past four months – which is not what the textbooks tell you should be happening when the labor market is brimming with confidence … To this, all we have to say is that according to the Bureau of Labor Statistics, there were a total of 4.1 million job postings available in December. Yet there were well over seven million unemployed people actively looking for work (and another five million who would engage in a job search if they thought it would lead to success). So, you can’t blindly look at a 4.7% unemployment rate and draw the conclusion that the labor market is tight enough to generate accelerating wage growth when there are as many as three potential job seekers out there for every available position. This still sounds like an excess labor supply backdrop to us, one that is inherently disinflationary, and a key reason why we are concerned that the Fed is on the precipice of a policy mistake if it raises rates much further. We have yet to hear from one policymaker as to how it can possibly be that this is a fully-employed economy when practically every measure of organic work-derived income (wages/salaries from the NIPA accounts; employment cost index; unit labor costs) is running at slower rates now than they were this time last year. And, the fact that real compensation growth per hour managed to decline in each of the past three quarters to stand at -0.4% year-on-year, something that barely happens once every decade, is hardly a trend one would expect from an economy supposedly operating at full employment.
CR emphasized “misconception #2”, but I have to ask those putting forth this notion that households are enjoying record net worth – have you folks calculated this series in terms of real wealth per capita?