Wall Street firms see strong job growth and steady economy

Surprise, Surprise, Surprise!

Tue, Nov 6 2007, 09:08 GMT

by Wachovia Corp. Economics Group

Wachovia

U.S. Review

Surprise, Surprise, Surprise!

This week brought a boatload of positive economic news and threw a

bucket of cold water on all those soothsayers calling for recession.

Real GDP grew at a 3.9 percent annual rate during the third quarter

and the fourth quarter got off to an exceptionally strong start, with

nonfarm payrolls adding 166,000 net new jobs. Even the inflation data

were milder than expected.

This week's stronger data reinforce our belief that the problems in

residential construction pose less of a risk to the overall economy.

While we are not particularly huge fans of pulling the data apart,

economic growth excluding residential construction grew at a 5 percent

pace in the fourth quarter.

Shazam!

While there are a few other choice words that could describe this

morning's much stronger than expected employment report, Gomer Pyle

probably has the best one. The consensus forecast had called for an

increase of around 85,000 nonfarm jobs, which is about half the

currently reported 166,000 job gain. Strength was broad based, with

gains across most of the service sector. The unemployment rate was

unchanged at 4.7 percent, as both civilian employment and the labor

force declined during the month.

The weakness in housing is clearly evident in the employment and the

GDP data. Employment in residential construction and specialty trades

fell by 21,500 jobs in October. Job losses were also evident in

manufacturing industries tied to homebuilding, including wood products

and furniture. Mortgage banks also continue to shed jobs as do home

improvement centers, which cut 7,100 jobs in October. In terms of real

GDP, residential construction plunged at a 20 percent annual rate

during the third quarter, slicing $26.8 billion, and 1.1 percentage

points, off real GDP growth.

While losses from the housing correction are highly visible, the

offsetting gains in other parts of the economy have received much less

attention. Exports surged at a 16.1 percent pace during the quarter,

adding $57 billion to real GDP, or nearly twice the drop in

residential construction. Output in business fixed investment and

commercial construction also increased. Gains in these areas are

creating jobs in other parts of the economy, which are more than

offsetting losses in homebuilding and mortgage finance.