Bob Deschner’s Blog

20071005 US Economy Job Growth Accelerates in September (Update4)  Initial reports on employment are like weather reports—they are so wrong so often, you wonder why anybody even listens to them. The bottom line:   The

US economy (outside of real estate) is doing better than we had hoped—and it’s getting better.

The Fed rate cut was the right amount at the right time.There is still a lot of blood-letting necessary to deflate the real estate bubble. Along those lines, I have reviewed several situations in which investors have bought large numbers of properties in previously “hot” markets.  Now they are desperate for help because their properties are vacant and underwater.  They owe more than the properties are currently worth—in some instances their potential net losses are more than they have taken out in borrowed “profits”. Unfortunately, if they can’t sell it, rent for payments or afford the negative cash flow, the prices of their properties are in free fall.  How much can they pay to stop the pain?  And can we find someone else who can step up and make payments—even after a deep short sale?  We will find out…and so will thousands of investors and homeowners in similar situations as their property prices fall.  Ironically enough, property values are increasing daily, but who wants to hold onto properties that are falling 30-50% in price while they are still not cash flowing on a monthly basis?   It is still not time to buy on value alone if prices are falling so much with more to come.http://www.bloomberg.com/apps/news?pid=20601087&sid=a1eZDfCaMXto&refer=home By Joe RichterOct. 5 (Bloomberg) –

U.S. employment accelerated in September and revised figures for August showed an unexpected gain, easing recession concerns and making the Federal Reserve less likely to cut interest rates again. Payrolls grew by 110,000 after an 89,000 increase in the previous month, the Labor Department said today in

Washington. The change to the August figure wiped out what had been the first decline in four years, a drop that spurred predictions the six-year expansion would come to end amid the credit-market rout.

Treasury notes fell as traders speculated that the central bank, which reduced borrowing costs by half a point on Sept. 18, will resist lowering them at the next meeting. Analysts said more jobs and rising wages will help consumers weather falling home prices, sustaining the spending that accounts for more than two-thirds of the economy. “It certainly doesn’t look like an economy that’s losing momentum,” said John Ryding, chief U.S. economist at Bear Stearns Cos. in

New York. “The Fed will move to the sidelines or else it’ll become much more apparent that the Fed was cutting for financial stability reasons and not the real economy.” The yield on the benchmark 10-year Treasury note climbed 12 basis points to 4.64 percent at 4:28 p.m. in

New York. Futures traders put the chances of a reduction in October at 48 percent, down from 72 percent yesterday, based on prices at the Chicago Board of Trade. A basis point is 0.01 percentage point. The Standard & Poor’s 500 Index hit an all-time high. `Nimble’ Fed Speaking less than an hour after the figures were released, Fed Vice Chairman Donald Kohn said officials must be “nimble” in setting rates given the risks of both slower growth and faster inflation. Commodity prices had the biggest monthly gain in 32 years in September, with the Reuters/Jefferies CRB Index advancing 8.1 percent. Today’s report validates comments from Fed district bank presidents, who have consistently expressed skepticism about how much the economy has been hurt by the market turmoil of August. Richard Fisher, president of the Fed’s

Dallas branch, said yesterday that “things are healing.” St. Louis Fed President William Poole warned investors a week ago not to assume further rate cuts would be forthcoming. The job number “ eases fears that the economy will take a dramatic turn for the worse,” said Julia Coronado, senior U.S. economist at Barclays Capital Inc. in

New York. “That makes the Fed’s decision a closer call. A rate cut in October is by no means a foregone conclusion.” Impact of Revisions Revisions added 118,000 workers to payroll numbers previously reported for July and August. The jobless rate rose to 4.7 percent from 4.6 percent the previous month. “Now we find out that not only did we not lose jobs, but we gained almost 90,000” in August, said Jim Paulsen, chief investment strategist at Wells Capital Management in

Minneapolis. “This goes a long way to start putting the crisis in the rear-view mirror.” President George W. Bush praised the jobs numbers, saying that the revisions add up to 49 consecutive months of employment growth, the “most on record for our country.” In the six years since the last recession ended in November 2001, the economy has created 7.1 million jobs, compared with 12.5 million during the comparable period following the 1991 contraction. Most of the August adjustment came in government payrolls, which expanded by 57,000 during the month, reflecting hiring of teachers for the new school year. School Holidays Changes in the timing of school holidays during the summer probably made it difficult for the department to count the number of teachers added for the new school year, economists said. Government payrolls further expanded by 37,000 in September, today’s report showed. Employment at businesses rose by 73,000 in September after a 32,000 gain in August. Private payrolls increased 115,000 per month on average from January though July. “The labor market is bending, but not breaking,” said Michael Feroli, an economist at JPMorgan Chase & Co. in

New York. “You still have some pretty good wage growth, some pretty good income growth that should be good for consumer spending.” Service industries, which include banks, insurance companies, restaurants and retailers, added 143,000 workers last month after increasing 153,000 in August. Retailers shed 5,200 jobs after adding 8,700 in August. Factories Lose Jobs Factory payrolls dropped by 18,000 after decreasing 45,000 a month earlier. Economists had forecast a drop of 10,000 in manufacturing employment. Payrolls at builders declined by 14,000 after falling 22,000 a month earlier. Lennar Corp., the biggest

U.S. homebuilder, has cut 35 percent of its workforce and will eliminate more, Stuart Miller, chief executive of the Miami-based company, said in a statement Sept. 25. Lennar last month reported the biggest quarterly loss in its 53-year history. Firings at mortgage companies are also contributing to the slowdown in the labor market. Morgan Stanley, the second-biggest

U.S. securities firm, said this week it plans to cut 600 jobs after a decline in mortgage-related revenue led to lower third- quarter earnings than analysts estimated. “We may be headed for trouble as it is,” said Robert Dederick, president of RGD Economics in

Hinsdale, Illinois. “Remember, economists are saying there’s a 35 percent chance of a recession, which is about as far as they ever go until we’re actually in the recession.” `Act as Needed’ The Fed on Sept. 18 cut its benchmark interest rate by a half-percentage point to 4.75 percent, and said they would “act as needed” to promote stable inflation and economic growth.

Poole said that while he sees “tentative signs” that credit-market turmoil is easing, “financial fragility is obviously still an issue.” So far, income gains have helped prevent a collapse in consumer spending, and some companies are still adding workers as they expand. Wages gained 4.1 percent in September from a year earlier, the biggest increase since February. Workers’ average hourly earnings rose 7 cents, or 0.4 percent, after a 0.3 percent increase the previous month. Hours Worked Average weekly hours worked by production workers were unchanged at 33.8. Average weekly earnings rose to $593.87 last month from $591.50 the prior month. Boeing Co., the second-largest

U.S. defense contractor, won a $1.1 billion award to maintain the Air Force’s fleet of more than 200 KC-135 midair refueling tankers. Maintenance will alternate between Tinker Air Force Base in Oklahoma and Boeing facilities in

San Antonio where 200 new employees will be hired. The payrolls report included the government’s preliminary estimate for annual benchmark revisions. The Labor Department said payrolls for the 12 months ended in March 2007 will probably be revised lower by 297,000, the biggest downward revision since 2002. Currently, government figures show 1.94 million jobs were created during the 12 months ended March 2007. The final estimate will be issued in February. To contact the reporter on this story: Joe Richter in

Washington Jrichter1@bloomberg.net Last Updated: October 5, 2007 16:35 EDT