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September Industrial Production and Import and Export Prices

KEY DATA: IP: +0.3%; Manufacturing: +0.1%/ Import Prices: +0.7%; Fuel: +3.9%; Export Prices: +0.8%; Farm: -0.7%

IN A NUTSHELL: “Some say manufacturing is rebounding, but output is still lagging.”

WHAT IT MEANS: If you look at the surveys from the regional Federal Reserve banks and the national and local associations, you would think that manufacturing is booming. But according the Federal Reserve Board, output really is going nowhere. Industrial production rose solidly in September, led by a rebound in utilities and mining. But manufacturing production hardly budged. For the quarter, manufacturing output fell, not a sign of a strong sector, hurricanes notwithstanding. There were some really wide variations in activity. For example, the vehicle sector responded to the need to replace all those hurricane-soaked vehicles and assembly rates improved. But the rise wasn’t huge as a number of makers had excess inventory that they managed to unload. There were some really good increases in a variety of other durable goods industries, including machinery, electrical equipment and appliances, metals, computers and wood products. On the other hand, most categories in the nondurable segment slowed production. This included petroleum, chemicals, apparel and printing. That weakness almost totally offset the strength in durables and it cannot be blamed strictly on hurricanes.

On the inflation front, import prices surged in September led by a jump in energy costs. Let’s hear it for hurricanes that didn’t touch the rest of the world but led to price increases anyway. But the increase in the cost of foreign products was not just due to the spike in petroleum. Food prices soared and vehicle and capital goods costs moved upward, though modestly. On the export side, petroleum led the way but the wild swings in agricultural export prices continued. In September, they were in the down side of the yo-yo.

MARKETS AND FED POLICY IMPLICATIONS: The debate continues over whether the Fed will raise rates one more time this year, likely in December. I say think will and I hope to earn my second cheesesteak in two years. Different person, but hopefully same outcome. The economy is in decent shape and it looks like third quarter growth could come in somewhere around 2.5%. If it is less than that it was likely due to a swing in vehicle inventories as hurricane replacements were pretty high in September. It will be interesting to see what happens with wages in the two reports we will get before the December meeting. While Fed members, and most everyone else, are baffled by the modest rise in wages and tame inflation, it is beginning to look like there may be a bit of a wage break out starting. The GDP report, when coupled with what is likely to be seen as some modest acceleration in inflation should provide ample support for Janet Yellen to go out with a bang – or a rate hike. The increase would happen even if she is not reappointed, which looks doubtful. Fed Chairs usually only consider not participating at their very last meeting. That is probably January 30-31, 2018.

September Producer Prices, Weekly Jobless Claims and Fed Minutes

KEY DATA: PPI: +0.4%; Energy: +3.4%; Goods less Energy: +0.2%; Services: +0.4%/ Claims: -15,000

IN A NUTSHELL: “While the hurricane-driven energy price increase may fade, there still are some cost pressures building in a variety sectors of the economy.”

WHAT IT MEANS: If the Fed is to raise interest rates this year, it will have to defend the move by saying that inflation is on the path toward its target of 2%. Well, the members got some ammunition from the September Producer Price Index. Wholesale costs jumped, led by a surge in gasoline prices. Hurricane Harvey disrupted supply and that led to a rapid rise in prices. About half the increase has already been unwound. But there were other pressures outside energy. In particular, services prices were up in just about every major category except construction. Trade services, transportation and wholesaling all posted significant increases. On the goods side, the situation was mixed. Food prices were largely flat but a surge in crude food prices points to an increase in the future. Consumer durable goods prices, including vehicles, were up. Cleaning and polishing products were up while electronic components and accessories fell. Overall, though, finished goods costs rose moderately, enough to create an acceleration in the year-over-year gain, which is what the Fed watches.

The effects of the hurricanes are beginning to fade from the jobless claims data and the total fell sharply last week. It is now back down to where it was pre-hurricanes. The hurricanes hurt some professions but helped others. But going forward, it is clear that if you have building trades skills and you can move, the hurricane devastated areas have jobs.

The Fed released the “minutes”, actually a sanitized summary, of its September 19-20 FOMC meeting. The important takeaway for many was the intense debate over why inflation remains muted despite the low unemployment rate. There is uncertainty over what is driving inflation and therefore what level of unemployment can be sustained without triggering a sharp rise in prices. Nevertheless, there was a clear hint that the Committee was leaning toward another rate hike in December. The statement read: “…many participants thought that another increase in the target range later this year was likely to be warranted if the medium-term outlook remained broadly unchanged.” While not everyone agreed, it appears that enough are behind moving in December that there is a decent probability it will happen.

MARKETS AND FED POLICY IMPLICATIONS: Inflation is not surging but it is also not fading. The report today shows enough broad based price increases that if the FOMC does want to move in December, it has a basis for doing so. Still, we have to see what comes of prices now that the temporary gasoline supply problems have dissipated. And as I always say, the path from wholesale to retail prices is not straight and often dead-ends.   So don’t assume that non-energy consumer prices will rise significantly faster anytime soon. As for investors, it’s the start of earnings season. While future inflation and potential rate hikes may sometime become important, I suspect that for now, it’s all about profits.

September Employment Report

KEY DATA: Payrolls: -33,000; Private Sector: -40,000; Revisions: -38,000; Restaurants: -105,000; Unemployment Rate: 4.2% (down 0.2 percentage point); Wages: +0.5%

IN A NUTSHELL: “The hurricanes  messed up an awful lot, including the economic data.”

WHAT IT MEANS: Yesterday I warned that the jobs number could be worse than expected and it was. Indeed, a decline was a surprise though not a shock. But the economy is not backpedaling. Really, did the restaurant sector collapse? Yes, they closed because of the hurricanes and some of them may never reopen, but most will be back up and running. Otherwise, the report was fairly normal. There were job increases in health care, transportation, construction, finance, insurance, professional services and government. Manufacturing employment eased, but this sector does bounce around a lot. And retail continued to shrink, but that was not a surprise. In other words, most of the data in the report point to nothing amiss in the labor market other than the hurricanes.

The unemployment rate declined sharply, but even here we have to sit back and wonder what happened. There were outside changes in most of the components of the unemployment number and that raises questions about whether the drop was overstated. The government indicated the hurricanes didn’t affect the rate, but I am not so sure.

Finally, there was a significant rise in the average hourly wage rate. I would like to say that we are finally seeing the tight labor market show up in wages, but I am not so sure. There was a large decline in low wage employment and that might have affected the average to the upside.

MARKETS AND FED POLICY IMPLICATIONS: Sometimes you have to just sit back and relax and this is one of those times. The decline in the number of jobs was a direct result of the hurricanes and next month we are likely to see things turn around, probably with a vengeance. Actually, this was a decent report. If you back out the weather-related issues, you probably get a number that is about trend. That implies the October increase could be above 300,000. As for the unemployment rate decline, that too needs to be viewed with some caution. The government indicated the number was not affected by the storms but the details of the report were way out of the ordinary. Basically, this report should be filed away as a wait and see what happens with the October numbers. And then you average them out. Will the market react to the worse than expected jobs number or better than expected unemployment rate? It shouldn’t. But what it should be concerned about is the wage gain, though that too may have been a creation of the temporary shut down of all those restaurants that forced a lot of lower paid workers off the payrolls. Otherwise, the best thing to say about this report is: Have a great weekend!

August Spending and Income and September Consumer Confidence

KEY DATA: Consumption: +0.1%; Disposable Income: +0.1%; Prices: +0.2%/ Confidence: -1.7 points

IN A NUTSHELL: “Sluggish consumer spending points to a weak third quarter growth number.”

WHAT IT MEANS: This week we received the final (for now) revision to third quarter GDP growth and the slight rise came from improved household consumption. It looks like the economy slowed sharply this quarter, in no small part because of a softening in consumer demand. Consumption ticked up in August, but when it was adjusted for inflation, it was actually down. Weakness in durable goods sales, basically motor vehicles, offset some increases in nondurables and services demand. The hurricanes were no helpful. But the uncertainty about consumers is not limited to the wrath of Mother Nature. Disposable personal income, while rising modestly, was also off when inflation was taken into account. It is hard to spend more when your purchasing power declines. Wage and salary growth pretty much disappeared and that does not bode well for future retail sales. Another warning sign is the savings rate, which edged downward again. Savings have declined five out of the last six months. On the inflation front, prices rose moderately overall but minimally when food and energy were excluded. The year-over-year increases in both the headline and core numbers are below 1.5%. Given the Fed’s target is 2%, there is a lot of room for prices to rise before the Fed has to worry about inflation.

Despite the chaos in Washington, the failure to reform the ACA and horrible hurricanes, consumer confidence remained pretty high in September. The University of Michigan’s Consumer Sentiment index did decline, but the level is strong. For most people, the hurricanes hit somewhere else and while there was concern for those who were hit by the storms, the impacts were not felt directly by most Americans. Thus, confidence did not tank.

MARKETS AND FED POLICY IMPLICATIONS: It looks like the economy fell back to its normal growth rate, or even lower, in the third quarter. We don’t have the September numbers, but given the hurricanes, it is likely that consumer spending will come in at half the 3.3% pace posted in the spring. But eyes are now turning to tax reform/tax cuts and the administration’s proposal has already come under intense fire since there are lots of winners and losers. That is always the case with any changes in policy. But the major issue is the impact on the deficit. Working backwards, the supporters have come up with a growth rate that implies the plan will pay for itself. If you believe that, I have both a Broadway show that I am producing and a bridge I am selling and you can have as much of each as you like. But it is not just bogus growth estimates that create risks to the plan. It provides significant tax breaks for upper income households, something the administration pledged not to do. By eliminating the state and local tax break, it creates the likelihood that upper-middle-income households will see their taxes rise not fall. And if the past is any example of how the money will be spent, don’t expect the repatriation of foreign earnings to lead to a lot of new capital spending. You can argue for or against all of the changes in the plan but they will create major disagreements. The one good thing is that the battle for tax reform/tax cuts has begun, though I suspect we will wind up with some cuts and not a lot of reform.

July Job Openings and August Small Business Index

KEY DATA: Openings: +54,000; Hiring: +69,000/ NFIB: +0.1 point

IN A NUTSHELL: “Small businesses remain optimistic and are hiring, even as the labor market tightens.”

WHAT IT MEANS: The August below-expectations jobs report was a disappointment to some but a reality check to others. The simple fact is that firms are hiring but are having massive problems finding workers in an ever-expanding economy. The Job Openings and Labor Turnover report, commonly called JOLTS, is one of the more closely watched releases that the government produces, especially by Fed Chair Yellen. The July report highlighted all the issues in the labor market. Hiring was solid, as we saw with the July jobs report. But more importantly, job openings reached their highest level on record. Firms cannot add workers fast enough to close the needs gap. The job openings rate, which is the number of openings as a percent of employment and openings, was up sharply over the year in a wide variety of industries. One of the problems facing firms is that workers are still pretty much locked into their current positions. The quit rate, which you would expect to rise in a tight labor market, ticked up but remained in the range it has been for the entire year. With companies unwilling to bid for workers from other firms, there is little reason to leave and that is limiting the availability of qualified workers.

Job gains should remain decent going forward as small business optimism is still quite high. The National Federation of Independent Business’ index edged up in August, led by a jump in the percentage of those that felt now is a good time to expand. To do that, firms are looking to invest more, which for small businesses is a strong sign of confidence. Firms would like to hire but labor quality remains a huge problem. Interestingly, while businesses are raising wages, expectations of future increases are falling. Maybe they think they have done enough. I suspect they will be disappointed.

MARKETS AND FED POLICY IMPLICATIONS: Until we start getting September numbers, the data will basically be good only for knowing how the condition of the economy going into the hurricanes. But the numbers tell us nothing about what we will see in the next six months. Indeed, it really makes no sense to react to these data. Keep in mind, Texas and Florida have the second and fourth highest state GDPs. Together, they account for about 14% of total U.S. GDP and employment. In other words, when they have problems, it has an impact on national economic activity. And their economies have taken a lickin’, though they will start tickin’ again soon. All we know right now is that going into the hurricanes, the economy was growing at a moderate pace and the labor markets were tight. After the initial downdraft in growth, the rebuilding process will hype spending. Think of all the houses, appliances, furniture, household products, motor vehicles, commercial and industrial buildings and so on have to be replaced. But at the same time, many businesses will never come back and many jobs will be lost permanently. But that would also free up a lot of workers to take other jobs, possibly easing the labor shortage in some areas. So as you can see, how this all shakes out is unclear, but it is likely to add to growth by the end of this year and well into the first half of next.

August Employment Report, Manufacturing Activity, Consumer Sentiment and July Construction

KEY DATA: Payrolls: +156,000, Revisions: -41,000; Unemployment Rate: 4.4% (up from 4.3%); wages: +0.1%/ ISM (Manufacturing): +2.5 points; Orders: -0.1 points/ Confidence: up 3.4 points/ Construction: -0.6%

IN A NUTSHELL: “The jobs report was not disappointing as the increases are now closer to the moderate growth we are seeing in the economy.”

WHAT IT MEANS: Since the July employment numbers were released, I have been saying I cannot figure out where all those workers are coming from if businesses are complaining that they cannot find qualified employees and job openings are at record highs. Well, it turns out that the government got a little carried away when estimating payroll increases for June and July and revised those numbers downward. BLS may have gotten it right in August. Yes, the number of new positions added was well below expectations, but it is right in line where it should be given the labor shortage and moderate growth pace. Indeed, the August increase may have been a little high the second biggest increase was in manufacturing, the vehicle sector in particular. Given the slowdown in sales, don’t be surprised if vehicle companies cut back on hiring in September. There weren’t any other sectors that added above-average jobs. As for the rise in the unemployment rate, it was minor, though minimal labor force growth is not a good sign. The participation rate was stable. Finally, wage growth remains minimal and troubling.

The manufacturing sector picked up steam in August. The Institute for Supply Management’s index rose solidly, led by strong hiring. That confirms the jobs increase reported in the August employment report. However, while production is booming, orders grew less rapidly and inventories soared, so we could see a softening in this sector going forward.

The University of Michigan’s Consumer Sentiment Index rose in August, confirming the increase reported by the Conference Board. Interestingly, respondents indicated that current conditions are softening, even if they are still raising their hopes about the future.

Construction slowed in July. Weakness in nonresidential activity more than offset a solid rise in housing. This is important because business investment in structures added to growth in the spring. That could turn around this quarter.

MARKETS AND FED POLICY IMPLICATIONS: Today’s employment data gets us closer to economic reality. The job numbers didn’t fit with other data, so the downward revisions were not surprising. The August growth rate is what we should be seeing and closer to what I expect going forward. That doesn’t mean the economy is slowing: It isn’t. It’s just that job gains now better reflect economic growth and the tightness in the labor market. This report is also more in line where the Fed expected, so it shouldn’t change any views. The FOMC members are more worried about wages than jobs and right now, compensation remain moribund. The next meeting September 19-20 and I don’t expect any rate hike, though we might get some indication when balance sheet reductions will start.

July Spending, Income and Pending Home Sales, August Layoffs and Weekly Jobless Claims

KEY DATA: Consumption: +0.3%; Disposable Income: +0.3%; Prices: +0.1%/ Pending Sales: -0.8%/ Layoffs: 33,825/ Claims: +1,000

IN A NUTSHELL: “It looks like the economy is sustaining the momentum created in the spring as consumers are still spending decently.”

WHAT IT MEANS: Can the economy keep it up? GDP expanded quite solidly in the second quarter, led by strong consumer spending and robust business investment. While the investment numbers are not yet out, it looks like the consumer is still hitting the stores and websites, though not at the pace we saw in the spring. Consumption rose moderately in July. When adjusted for price gains it was good but not that great even though inflation remains contained. Still, spending on both durable and nondurable goods was robust. It was just that demand for services was mediocre. Consumers, though, can maintain that decent pace. Disposable income continues to grow as wage and salary gains were strong for the third time in four months. The concern, though, is that the savings rate continues to decline, so how long people will keep up the spending pace is uncertain.

The roller coaster that is the housing market continues its up and down ride. The National Association of Realtors reported that pending home sales fell slightly in July. Declines were in three of the four regions, with only a small gain in the West. Over the year, there was an increase only in the Northeast. It looks like home sales will not pick up much, if at all, in the next couple of months.

Businesses continue to hold on to their workers tightly. Challenger, Gray and Christmas reported that layoff announcement did rise in August, both over the month and the year. But so far this year, planned payroll reductions are down over 26% compared to the first eight months of 2016. Retailers have announced the largest number of layoffs this year, but that is slowing. The services sector is also running well ahead of 2016 numbers. In contrast, the energy sector has cut its layoff announcements by 87%.

Weekly jobless claims rose minimally last week and remain near record lows.

MARKETS AND FED POLICY IMPLICATIONS: The expansion continues unabated, but it is beginning to look like we may not see growth at or above the 3% pace posted in the second quarter. Houston is going to create some noise in the data for quite a while. The metro area is so large that reductions in some sectors or increases in others can affect the monthly, seasonably adjusted data. The numbers don’t account for major natural catastrophes. So, it is really hard to know what third and fourth quarter growth will come in at. That said, the overall impact might not be large, as much of the rebuilding will occur over many months if not years. I had flood insurance but it still took many weeks to get just the first check after Sandy flooded the first floor. Some homes took years to be rebuilt. Imagine the situation in Houston where most people don’t have insurance. It could take a long time to get things done, even if Congress acts quickly. Thus, investors will have to parse the data over the next few months really carefully to separate out the temporary factors from the underlying trend. As for tomorrow’s jobs report, the expectations are that it will be a good one with about 175,000 new positions added and the unemployment rate remaining at 4.3%. I think that forecast is high and it will be closer to 150,000.

 

July Industrial Production and Leading Indicators and Weekly Jobless Claims

KEY DATA: IP: +0.2%; Manufacturing: -0.1%/ LEI: +0.3%/ Claims: -12,000

IN A NUTSHELL: “Softening vehicle sales are weighing down the manufacturing sector.”

WHAT IT MEANS: The Federal Reserve released the “minutes” of the last FOMC meeting yesterday and it seems there is a lot of uncertainty about what to do next and when to do it. In particular, there was great debate about the slowdown in inflation, why it is happening and what that means for the pace of rate hikes and balance sheet reduction. It is no longer clear that in September, the Committee will announce when it will be starting the process of balance sheet normalization. It had been the consensus that we would get something next month.

If the Fed is to start the reducing its bond holdings and continue raising rates, the economy and inflation may have to pick up steam. If or when that will happen remains uncertain after today’s data. While industrial output rose moderately in July, it was largely due to improving utility and energy production. Weak vehicle sales, which led to a sharp reduction in assemblies, are holding back not only transportation but also those sectors, such as metals, that feed into vehicle production. Large increases in apparel output (likely an anomaly) and chemicals kept total output from tanking. Basically, the manufacturing sector may be expanding but it is hardly booming.

While the industrial production data didn’t point to any major improvement in growth, the Conference Board’s Leading Economic Index did indicate that activity should pick up. After posting a large rise in June, the index rose solidly in July, led by rising financial indicators. As the press release noted, “the U.S. economy may experience further improvements in economic activity in the second half of the year”.

As for the labor market, unemployment claims fell sharply last week, reaching record low levels when adjusted for the size of the labor force. The labor market is tight but wage gains are not rising, which is confusing to an economist – or at least me.  

MARKETS AND FED POLICY IMPLICATIONS: So, we have uncertainty in manufacturing, but strength in financial indicators pointing to stronger growth. However, yesterday’s report on July housing starts and permits was a real downer. Both fell, which was a surprise. This segment of the economy had been showing signs of strength. Well, maybe not. When you put it all together, it is hardly clear whether we can get to the administration’s goal of 3% growth for more than even one quarter. We might see something close to that in the current quarter, but unless incomes growth faster, that pace would not be sustainable. And if we continue on the 2.25% growth path, businesses may be able to hold the fortress against faster wage gains. The potential for greater labor cost pressures, in conjunction with the unwinding of some temporary factors that the Fed believes is currently restraining inflation, is what has driven the belief that the normalization process can continue unabated. But for some at the Fed, patience is running thin and they are saying that maybe the process should be slowed. The next meeting is September 19-20 and that one may take on even greater importance, as we need further guidance on what the Fed’s normalization schedule might look like. This might also be Janet Yellen’s last meeting before a new Fed Chair is nominated. If, as expected, it is not Yellen, that could introduce another dynamic into the discussions.

 

July Consumer Prices and Real Earnings

KEY DATA: CPI: +0.1%; Less Food and Energy: +0.1%/ Real Earnings: +0.2%; Over Year: +0.7%

IN A NUTSHELL: “The only thing saving consumers is low inflation as spending power is going largely nowhere.”

WHAT IT MEANS: Inflation remains well under control. Yesterday we saw that wholesale costs were soft and today’s consumer price report also pointed to minimal inflation pressures. The Consumer Price Index rose modestly in July. While energy prices edged down, food costs increased moderately. (The all-important bakery component surged, so my diet is safe.) Excluding food and energy, prices were up minimally. Looking at the details, several components stood out. Prices of medical commodities and services continue to surge. The deceleration in medical costs had been going on for quite some time but that is no longer the case. On the other hand, costs of both new and used vehicles keep falling. The slowdown in demand and the large number of vehicles coming off leases are pressuring the sector. Households are also being buffeted by large increases in vehicle insurance. Clothing prices were up in July but for the year, they are still down.

While they wait for wage gains to accelerate, workers can be thankful for the modest inflation. Hourly wages rose moderately and only part of that gain was lost to the low inflation. Still, the increase over the year of real, or inflation-adjusted earnings is pathetic. For all of 2017, real hourly earnings have expanded by less than 1%. Households are earning more, but some of the gains are coming from working longer. Even when you add the rising hours worked to the gain in wages, family spending-power has increased by just over one percent. That is why so many people are unhappy.

MARKETS AND FED POLICY IMPLICATIONS: The Fed may want inflation to pick up, but that would not be good news to households. Wages are growing modestly and the only way spending power has increased at all is that inflation has remained below the Fed’s target rate. As I have noted on countless occasions, it is hard for the economy to grow much more than 2% if earnings are largely flat and that is still the case. Real wages had accelerated during 2015, but the gains have slowed over the past eighteen months. Consumers have had to reduce their savings rate to maintain their lifestyles. That is not good news. So we are stuck in the same trap that we have been in for several years now: Wages are rising modestly so consumption is mediocre. That is keeping growth down, limiting business pricing power and causing inflation to decelerate. The slow growth is also enabling businesses to restrain wages and allow job openings to go unfilled. The Fed members really want inflation to rise above 2%. But if that happens without a concomitant increase in wages, consumer purchasing power will decline, slowing growth. Essentially, the driver of stronger growth appears to be, at least to me, better wage increases. That would expand demand and growth, induce workers to work harder not just longer, improve productivity, pricing power and profits and induce greater investment. That’s my theory and I am sticking to it.

July Private Sector Jobs and Help Wanted OnLine

KEY DATA: ADP: +178,000; Manufacturing: -4,000/ HWOL: -157,700

IN A NUTSHELL: “Job growth is really solid, even as firms give up advertising for workers they cannot find.”

WHAT IT MEANS: It’s Employment Friday week, which means we get the estimate of private sector job gains by ADP. The employment services firm is predicting that payroll increases were pretty solid in July. Strong hiring by mid-sized firms, those with 50 to 500 employees, led the way. But both the smallest and largest companies added workers at a decent pace. Looking at the sectors, it is nice that energy is adding to not subtracting from job growth. There were strong increases in professional and business services, education and health care. On the other hand, manufacturers cut workers while the construction boom may be slowing as builders added only a modest number of new employees.

While ADP is telling us that firms are hiring, the Conference Board is indicating they are cutting back sharply on their advertising. The number of help wanted ads posted online fell sharply in July. The level peaked at the end of 2015 and has been on a fairly steady downward trend since. Just in the past year, there was a nearly 10% drop. And the fall off was widespread. Declines were seen in nineteen of the twenty largest states and only five states showed increases. Similarly, nineteen of the twenty largest metro areas showed reductions in advertising activity and only four of the top fifty-two areas were up. Finally, every one of the ten occupational categories posted declines. In other words, this is a nation-wide, economy-wide slowdown.

MARKETS AND FED POLICY IMPLICATIONS: If the ADP numbers are anywhere close, something that doesn’t happen all the time, we should get a pretty good employment report on Friday. That raises the following questions: First, if firms are hiring so strongly, why are they complaining they cannot find qualified workers? Are they only hiring unqualified workers? Second, if they are having so much trouble finding qualified workers, why are they cutting back on the search process? The labor market is a real conundrum. Job gains are solid and no matter which measure of unemployment/underemployment you use, conditions are tight. Meanwhile, wage increases are tepid. Something has to give. I don’t think we will get the strong increase that is forecasted (consensus is 180,000). I think it will be less than 150,000. But even my number is more than the labor force growth and should lead to a decline in the unemployment rate. And it should put even more pressure on wages. Until that actually happens, though, I will join the Fed members in being confused about the true state of the labor market. As for investors, they want to see that wages are rising faster for an extended period, so even if we get a pop in labor costs on Friday, I don’t expect panic to set in.