November 2, 2007

Irrational Pessimism, Part II: Jobs Report

Yesterday, I wrote about the blinkered pessimism Americans have adopted of late. At Heading Right, I parsed a USA Today poll that showed voters despondent over the political and economic direction of the country -- despite continuing strong growth and a dramatic improvement in Iraq. New data continues to show the irrationality of the mood, as jobs have expanded again and unemployment remains at near-record lows:

U.S. employment soared at its fastest pace in five months in October led by strong gains in services, easing concerns about the state of the economy and suggesting further Federal Reserve rate cuts are highly unlikely in the near term.

Meanwhile, factory orders managed a small gain during September, a welcome surprise amid indications the manufacturing sector and economy in general are slowing.

Nonfarm payrolls rose 166,000 in October, the Labor Department said Friday, up from September's 96,000 gain, which was revised down by 14,000. August payrolls were revised up to a 93,000 gain from 89,000. The unemployment rate was unchanged last month at 4.7%.

Inflation appears well contained. Even with the tight labor market, wages rose only slightly, with slightly under 4% real gain since this time last year. Not only that, but the increase in factory orders matches the steady consumption of Americans, where new car sales remain stable despite the rise in energy costs and worries over the housing market.

Where did the new jobs originate? Mainly in the service sector. Business and professional services led the way with 65,000 new positions, giving lie to the common complaint of a burger-flipper economy. Education, health services, and hospitality all increased significantly as well. The latter seems to indicate that Americans, despite their professed gloom, have more resources to apply towards leisure than ever before.

Even financial services expanded, an interesting indicator for those obsessing about the sub-prime market woes. The firms engaged in those markets don't appear to be contracting to save costs. No one doubts the risks associated with that arena, but the ones most at risk don't appear to have panicked.

Once again, one has to wonder where all of this pessimism originates. By all objective measures, the economy still remains strong, and all indications is that it will remain so. Perhaps people may need to get past the anecdotal reporting and take a look at the real data.


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