How strong is the job report
Jan Hatzius --- Goldman Sachs
>> Welcome back to bristol-myers -- - “world financial report.” The stock markets down on a friday, up for the week, though, at least the dow and s&p. .3 lower for the dow. The s&p off .4% on Lighter-than-average volume. If you look at the nasdaq, it was the key laggard today, 900 million shares. How strong was today’s jobs% Report and what can we expect for the future? Earlier, erin burnett put these questions to goldman sachs’ economist jan hatzius.
>> on the whole, the number was pretty decent. The headlines were closer expectation, the guts were stronger than the headlines. There’s a reasonable amount of consumer income in the report. Wages were a little stronger. There was upward revisions there. The work week was stronger. So i think if you were worried that the income trend was faltering, i think you’ll be less worried about that now.
>> given that over the past few months there’s been a discrepancy between what economists were expecting and the way the actual number panned out, do you have more confidence in this number than the others?
>> no. I think it’s just that these Monthly numbers are hard to Forecast.% I think that’s a reality that people should get used to. And the―it so happens that economists’ forecasts were. Better on this one but i have no doubt we’ll be off by a couple hundred thousand on either side in the future.
>> you talked about the guts of the reports being stronger than the headline number. One of the things you referred to was wage growth. We’ve seen a lot of numbers about income growth, showing it’s been lagging inflation, that actual disposable income for the consumer is not keeping up with inflation. What is your view?
>> that’s very true. The wage growth numbers have been very poor. In nominal terms and especially in real terms given that you have had an increase in inflation. A monthly report on unemployment is always going to give you information just at the very, very margin, what happened recently relative to, say, six months before that or a year before that. And so the improvement that i was talking about, you know, it’s very, very incremental thing. It doesn’t mean the wage trend is strong, but it’s stronger than it was.
>> what about the participation rate? It appears from the number that part of the reason we saw a decline in the employment rate is because fewer people were looking for jobs.
>> right. The decline in the unemployment rate was just due to a decline in the labor force and bigger picture, the participation rate remains very close to the cyclical low that we had earlier this year. The expectation that people would come back into the labor market as the jobs picture improved hasn’t been borne out really so perhaps there was less slack in the labor market than people thought at the end of 2003 or early 2004 because if there was a lot of slack, you should see people come back as jobs numbers have improved.
>> what is your view right now on the state of the u.s. Economy? We’ve been getting some Weaker-than-anticipated numbers, obviously, today, even on the service sector.
>> i hate to sound like an economic girlie man, but i do have to say that i think the economy is decelerating. We’ve seen the best part of the growth, i think, for quite a while. I think it’s most pronounced in the industrial sector of the economy where we’re seeing a very pronounced inventory buildup and i think the industrial indicators over the next six months or so will weaken considerably. We have the decline in the manufacturing i.s.m. Survey on wednesday and i think that’s just the first step in potentially a pretty significant deceleration in the i.s.m. Survey. I think we’ll work 50 and possibly below in 2005.
>> what does that mean for the fed? If we see a sharp slowdown, what should the fed do at this point when rates are already at an emergency level?
>> i think in the near term, they’ve made their intentions pretty clear. You will get a 25-basis-point hike at the september 21 meeting. And you’ll probably get more hikes beyond that. Once you get into 2005, you know, it becomes a little less clear. We’re still expecting further hikes in 2004, that’s a much closer call, expecting further hikes in 2005. The fed’s forecast is much more optimistic than the market consensus. Our own forecast is less optimistic than the market consensus but ultimately they’re the ones making monetary policy.
>> all right. European averages ended the week higher while asian stocks were lower but enough of the history. When we get back, we’ll preview what’s going to move markets there next week when the “world financial report” continues.
