Saturday, May 15, 2010

Payrolls Are Key to Recovery

Are the rise in payroll jobs a key to this recovery? An analysis of payroll jobs in April show a healthy 290,000 increase, following a revised 230,000 advance in March, and 39,000 rise in February. Net combined revisions for March and February were up 121,000—including turning February from negative to positive. A continued payroll jobs increase will put a definite end to this Great Recession.

Payrolls have risen for four consecutive months and in five of the last six. And April’s boost was the largest in four years. It’s hard to argue that we are still in recession with this string of gains, even though more than 72 percent believe so in a recent NBC poll.


Why the continued pessimism? Because the recovery has been so uneven. The payroll data reveal why. Gains were widespread in the manufacturing sector, but not in the service-producing sector, where most of the jobs are today. Goods-producing jobs increased 65,000 after a 55,000 rebound in March. Manufacturing employment surged 44,000, following a 19,000 advance in March. Construction jobs even continued a comeback with a 14,000 rise, after rebounding 26,000 in March. Mining jobs rose 7,000 in April.

Private service-providing employment did gain 166,000 in April, following a 119,000 boost the month before. Latest strength was in professional & business services, up 80,000; leisure & hospitality, up 45,000; and education & health services, up 35,000. But wages are still stagnant, though hours worked has picked up, as employers try to maximize profits by pushing their workers harder, rather than add to their workforce.


Wage inflation is ‘nonexistent’, in other words, but it is hard to tell initially if weakness is related to shifts in the composition of hiring, though that likely partially explains the weakness, says Econoday. Average hourly earnings were flat in April, following a 0.1 percent dip in March.

So what is holding consumers back? The biggest negative was the unemployment rate rising to 9.9 percent from 9.7 percent in February. Nonetheless, there is positive news from the household survey as the jump was due to an 805,000 surge in the labor force. April household employment actually jumped 550,000. Basically, discouraged workers see hope of employment and have jumped back into the labor force. Essentially, the spike in the labor force points to optimism on the part of workers.

Workers remain hopeful, in other words, but progress in bringing down the unemployment rate is going to be slow. The median duration of unemployment rose to 21.6 weeks from 20.0 weeks in March.

Recent improvement in jobs may be spilling over into greater willingness by consumers to spend—and, in turn, this is bolstering the recovery. In fact, personal spending strengthened and outpaced income. Personal Consumption Expenditures posted a 0.6 percent boost in March, following a 0.5 percent jump the month before. Spending was led by a surge in motor vehicle purchases as seen in a 3.6 percent spike in durables. Nondurables advanced 0.3 percent and services rose 0.2 percent.


It is probably corporate profits that will determine future job growth, as we said last week, and profits are soaring. Profits in the fourth quarter were up an annualized 37.0 percent, following a 68.0 percent jump the prior quarter. Profits are after tax but without inventory valuation and capital consumption adjustments. Corporate profits are up 51.8 percent on a year-on-year basis.


Other factors than employment and corporate profits spur economic growth, of course. Manufacturing has grown in large part because the weak dollar has caused exports to soar. Exports are up 3.2 percent in March and more than 20 percent in a year. And forward momentum is building as the ISM’s manufacturing new orders index continued its rebound to reach a strong 65.7, where 50 or less is no growth. New orders have been in positive territory for 10 straight months.


Harlan Green © 2010

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