Friday, July 07, 2006

Déjá Vu About Stupid Wall Street Analysts

In a series of events earily similar to what happened two months ago, Wall Street analysts strangely chose to characterice a strong U.S. job report as weak because of their irrational obsession about the "non-farm payroll". Just like two months ago, both the average work week and average hourly earnings came in a lot higher than expected, but all of this was ignored because "non-farm payrolls" were somewhat lower than expected. The implicit value of the upwards deviation of workweek and hourly earnings were more than 10 times higher than the implicit value of the downward deviation of "non-farm payrolls", but that is apparently irrelevant for the so-called analysts of big Wall Street firms.

Anyway, the strong employment report was somewhat surprising given the weak car- and retail sales and the weakness of both the manufacturing and non-manufacturing ISM Surveys. Aside from statistical discrepancy (i.e. that either or both sets of numbers are wrong), the only possible interpretation of this is that unit labor costs and price inflation was very high ( The high nominal growth implied by the employment report divided by the weak real growth implied by the weak car sales and weak ISM surveys). That would imply that far from the Fed's interest rate hikes being done, they must and will continue.

With the continued increases in commodity prices (Oil rising above $75!) and the likely continued acceleration in rent increases from the unaffordable housing market continued with a pick-up in the so far subdued unit labor costs, price inflation is likely to continue to stay high or even accelerate.


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