Positive Signs for the U.S. Labor Market, But Struggles Remain 8 comments
November 30, 2009
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Following the fiscal and monetary stimulus that pulled the U.S. economy out of recession in the third quarter (but the growth rate, +2.8%, was lower than the previous estimate of +3.5%), economists now almost unanimously agree that the labor market upturn will be key to ensuring a continuation of the ongoing recovery into the months ahead.
This is in tune with the Fed’s thinking, as indicated in the minutes of the November 3-4 FOMC meeting. Indeed, only better employment conditions will likely translate into a sharp upswing in private consumption, which account for 70% of GDP. By contrast, a persistently negative labor market environment would likely trigger a further increase in foreclosures, which would weaken further private consumption and increase the savings rate.
Not surprisingly, this week’s major macroeconomic data release will be the publication of the November’s U.S. labor market report on Friday 4.
Encouraging signs on the labor market trend came last week from initial jobless claims, down from 501,000 for the week ending November 21 to 466,000. The four-week moving average, which traditionally smoothes out weekly volatility, dropped to 496,000 from 513,000 the previous week. Although the figure remains far from levels usually associated with job-creation, it gives clear evidence of a turnaround that could mark the beginning of unemployment downtrend in the medium term. (Click to enlarge)
Another positive signal on the labor market outlook was the increase above 50 of the employment sub index in the ISM manufacturing confidence Index. Indeed, the data showed that an increasingly larger number of companies are considering returning to hire in the coming months.
Nevertheless, consumers appear to be less optimistic about employment prospects. The “jobs hard to get” sub-index included into the Conference Board’s consumer confidence index, a good leading indicator of unemployment trend, has worsened further in November, up from 49.4 to 49.8. Therefore, consumers do not expect a sharp labor market upturn near term but they fear it will deteriorate further.
As regards the November figure, though a further drop in non-farm payrolls seems to be inevitable, a continuation of the recent improvement in employment conditions, with job losses shrinking below 150,000 units (vs. Bloomberg’s consensus estimate of 125,000) from 190,000 in October and the unemployment rate on hold at slightly above 10%, would be welcome news.
However, the labor market (and a consequent net creation of jobs) should not turn the corner any time soon despite the strong increase in corporate productivity and profit margins in the third quarter of this year. Before returning to hire, companies will likely raise the number of hours worked by existing staff and transform the contracts of those employees who have accepted a reduction in the hours of work not to lose their post from part-time into full-time work. According to the latest data by the U.S. Bureau of Labor Statistics, in fact, the average hours worked per week have decreased from 33.8 pre-recession to 33 and 9.3 million part-time workers are longing for a full-time contract.
A rapid and sustained improvement in the labor market is also being hindered by capacity utilization in recent months. The chart below shows that the labor market has deteriorated less than anticipated by the collapse in capacity utilization to 68.3% - the lowest level in the past 40 years. For example, at the time of the December 1982 record low of 70.9%, the unemployment rate climbed to 10.8%, well above the present value. With capacity utilization at 70.7% in November, a further improvement in this data, which is obviously closely correlated with the economic cycle, is necessary to record lower unemployment rates.
On the other hand, even in the face of a continuation of the upturn in economic activity throughout 2010, unemployment conditions would take time to get better. Indeed, the jobs to be created for new entrants to the labor force (about 100,000 per month) should be added to the jobs needed for those who have lost them in the past two years (over 7 million).
The November FOMC meeting minutes, for example, showed that the Fed members’ average estimate is for a decline in the unemployment rate to 9.5% in late 2010. With a projected workforce increase of 1% in 2010 (to 155 million), the Fed’s central estimate implies a creation of some 2.5 million jobs over the next 14 months. A considerable advance -- though certainly not enough to recover the ground lost in the past two years.
Under this scenario, the recession that began in December 2007 would have ended well before the third quarter of this year, which is highly unlikely given the recent development in industrial production and household income. The unemployment rate continued to rise during the 14 months subsequent to the end of each of the last two recessions.
Considering the last six recessions, the unemployment was either in line or exceeded the Fed’s predictions only in two cases (in 1975 and 1982). The Fed’s forecast of a 9.5% unemployment rate at end-2010 could therefore prove to be overly optimistic.
All in all, the November labor market data should provide two key indications. First, the worst for the U.S. economy, and ultimately for the labor market, should be over. Second, the recovery should be very slow and the fallout from the crisis should be felt for several years.
According to leading U.S. newspapers, President Obama is understood to be under increasing pressure to implement new programs to ease labor market conditions.
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Unemployment arrested? Don't hold your breath!
Food stamp usage up to 25% of children to get enough to eat.
Look at the real stats shadowstats.com
It is very possible that we could be in 2011 before we see the real employment picture improving enough to sustain adequate GDP growth of 2.5% consistently. In the mean time, I expect a rough, bumpy road for the economy.
However, check the author's picture..................
Go ahead....................
I never knew Oakley manufactured rose-colored frames.
On Nov 30 08:33 PM Donald Ingram wrote:
> There is NO recovery. You have had enough government kool-aid. Move
> away from the punch bowl.
> Unemployment arrested? Don't hold your breath!
> Food stamp usage up to 25% of children to get enough to eat.
> Look at the real stats shadowstats.com
1) Shoeshine person-We want to keep our new executives looking good!
2) valet-(see below)
3) maid-must be discreet as our asian and hispanic friends are somewhat sensitive to family secrets
4) cook-must know how to prepare ethnic dishes
5) lawn boy /gardner-Since most Americans can't afford homes anymore I am sure our asian and hispanic friends will welcome former executives who miss cutting their own lawns.
6) Security guards- When our asian and hispanic friends come here and start buying up American homes for pennies on the dollar there may be some hostility.In order to protect our friends we need to provide them with security from interlopers and former property owners living under bridges.
7) Auto detailer - Since most Americans cant afford to buy cars anymore they can do the next best thing ! They can clean and wax our friends cars and make them feel welcome .Imagine the look of pride on a detailers face as he works 2-3 hours in the blazing hot Texas sun and then he gets a 50 cent tip for such outstanding service.
8) Well as one can obviously see from this article . Opportunities abound for the industrious.Dont worry as soon as the dollar becomes worthless(very shortly now) Americans will be flush with jobs again. They may even have to work 3 or 4 jobs ...what fun !
Your government hard at work ...;)
As we head into 4Q09 and 1H10, the revenue and earning comps are a joke. This will prove great for earnings seasons, and the market is conditioned to rationalize mediocrity. So, into 3Q10, it is likely that "not-Armageddon" economic stats, mediocre corporate performance, and publicly-funded demand will provide sufficient fuel for this perplexing bull rally.
My opinion: companies or government agencies hide mounting and unsustainable crises until their options expire. There are some pretty ugly financial pressures building up and economic fundamentals are not improving fast enough.
Regarding the Fed's predictions considering they revise them unceasingly, it's a wonder they aren't 100% in line. /In fact, the Fed is almost always wrong and is 100% wrong on their initial assumptions. So I guess we musrt figure out where on the scale of wrong they are. Is this the beginning of their correcting for their errors or after they fudged the numbers.
They remind me of a kid trying to find an item blindfolded with someone (this case being reality) saying you're getting hotter or colder every month. Should we congratulate them on their 10th try?