I often cite the great New Orleans pianist/composer at moments like this, when the economic data are jumping around this way and that.
Most analysts, myself included, agreed that first quarter GDP was a large outlier, but not to put too fine a point on it, that -2.9% was just a crap number (here’s my take). This morning’s ADP jobs report, on the other hand, reports 281K net jobs created in the private sector last month. Tomorrow, in a rare Thursday edition, we’ll get the BLS jobs report; expectations are at about 210K for payrolls, right in the middle of the underlying trend, which is running about 200-220K.
My forecast model spits out 215K, but I tweaked it a bit to downweight the ADP number which seems a bit high to me. Still, I’d guess there’s upside risk to my forecast and if total payrolls come in at 240K, I wouldn’t be surprised.
One observation here is that the GDP and the jobs numbers can’t both be right because sharply declining output amidst moderate/decent job growth implies collapsing productivity, which is implausible (slowing, maybe; collapsing, no).
Another confusing dynamic in the data stream is bond yields. They tend to rise as the economy heats up because investors see some inflation coming (against which they want some protection) and because they migrate over to higher-yielding stocks, sending bond prices down (bond yields move opposite to their prices). As the figure below reveals, 10-year Treasury rates have come down about 50 bps this year, the opposite of the “growth-is-about-to-bust-out-everywhere” narrative.
And sure, deep Federal Reserve intervention is obviously helping to keep rates low, but that too should be pushing the other way this year, what with the taper.
Yes, there’s a bit more inflation, as both yr/yr core CPI (1.9%) and core PCE (1.5%) have accelerated some. But that’s a good thing, evidence of signs of economic life. The Fed’s target of 2% core inflation (and they’re typically thinking about the PCE) is not a ceiling; it’s where they’d like prices to settle, which doesn’t preclude going above 2% in the interest of closing remaining output gaps. And importantly, wage pressures remain to be seen.
I’ll be at my battle station tomorrow AM, ready to see if the job numbers can help un-fry some of this confusion.