The nature of market economics never really allows for certainty. If someone is ‘sure of something’ it normally means they are either cheating or just plain making it up. The economic data of a country will also rarely move lock-step in one direction either – save the global financial crisis of 2008. However, it is rare to see such a divergence in data in the way we are between growth and job market improvements in the United States at the moment.
To recap, Q1 GDP in the US was a miserable affair -2.9% lower on an annualized basis than the quarter before as a result of an almost total shutdown of North and North East of the country from a crippling bout of arctic weather that closed roads, ports, airports and stopped industry in its tracks. We currently have an estimate for Q2 GDP at about 3.1% level on an annualised basis. Last week’s retail sales numbers were a little below par, but decent revisions to the previous month’s number made up for some lost ground.
The image was one of careful, cautious consumer spending – a similar picture to what is going on in overall investment and capital expenditure. In isolation this is a fairly strong number, but to all intents and purposes it would also mean that any growth in the US economy through the first half of 2014 has been marginal at best.
Here is where the divergence comes in. The 6 month average increase in employment in the United States as measured by the Non-Farm Payrolls announcement is 231,000 a month. On average the US economy has added 231,000 jobs a month through the first half of this year. To find a higher 6 month average you would have to go back to April 2006 – a time when credit crunches, globalized sovereign systemic risk and the euro crisis were over 2 years away. There have been months within that time frame where readings have been above 230k, but for continued positivity, the beginning of 2014 has been the recent pinnacle.
Neither of these readings are entirely correct in our eyes, and neither are completely wrong. We are expecting to see Q1’s GDP announcement eventually revised higher, as trade and spending numbers from the latter part of the quarter are taken into account. Likewise, the gains in employment aren’t as simple as a headline number. A large number of part-time and self-employed jobs have come into the market since the beginning of the year. There are new jobs, but not the ideal, full-time, well-paid jobs the Federal Reserve is looking for.
Q2 GDP is due on July 30th with a payrolls announcement 2 days later. Dollar bulls will be looking to see both moving significantly higher.