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November 4, 2005

It's Jobs Friday part 2, Fri., Nov. 4, 2005, 10:55 AM

The U.S. Dept of Labor reported that jobs grew by +56,000 in October. In truth, the Labor Secretary doesn't know whether the jobs actually grew or fell, but interestingly her staff have reported that the hurricanes did not affect the quality of the data.

Let's say the data is accurate (or as best a statistical tool can be), some pundits are saying the miss from much higher estimates is due to hurricane-related causes, and others are saying that companies are pulling in their horns as they are seeing weaknesses in consumer behavior. Isn't this just a way of saying corporate America is becoming bearish on the prospects for economic growth in the face of rising interest rates and high energy and other commodity costs?

In any event, the equity market seems to be priced for optimism on the economic front. My guess is that the market is sensing that there will be very little slowdown in the double-digit growth of corporate earnings, a GDP that will grow in 2006 at about +3.8 pct, a ten-year bond yield ($TNX) of about 4.60, NY crude oil at $55 (or lower), a trade-weighted USD averaging above 92, and job growth that will exceed 2.4 million in 2006.

That's my sense of it, but doesn't that sound pretty much like a White House press release. It could even be the script that Larry Kudlow drums into his guests and his audience on a daily basis. He might even say that this scenario has a Goldilocks look to it: not too hot, not too cold, but just right.

I say get real.

Today's Jobs Report, and the one's leading up to it, and the anecdotal evidence that is starting to pile up during this earning's season with respect to forward guidance, and the inflation data we're getting from all around the world, is pointing to the probability of much weaker performance.

To throw some of these numbers around, I could see the average 2006 yield on the 10-year Treasury note to exceed 5 pct by a wide margin. I could see U.S. GDP growing at +2.0 pct, which is midway between the recession some are calling for and the cheerleading of Kudlow. I can see the average 2006 price for NY crude oil sticking at the $55 level, the USD below 85, and job growth for 2006 that comes in about +1.7 million (which is not good).

The point with this exercise is to say that I believe the current equity market is over-priced.

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Here is the Haver Analytics report, which you can access at www.econoday.com, which is a terrific service.

Posted by Posted by Bill Cara on November 4, 2005 10:55:43 AM | Category: Economics

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