The headline number for payrolls in May was disappointing, according to the media, because of anemic growth in the private sector. But in fact it is leading to a more sustainable recovery. Most were temp help workers hired for the U.S. Census, but this will lead to more permanent jobs as overall production continues to increase. Overall payroll jobs in May surged 431,000, following a 290,000 boost in April, and a 208,000 gain in March.
The positive news in the payroll survey was in earnings, the workweek, and production hours. Wages picked up with a 0.3 percent rise in May, following a 0.1 percent advance the month before. The average workweek for all workers edged up to 34.2 hours from 34.1 hours in April. Production hours overall advanced 0.3 percent in May after a 0.4 percent rise the month before. For manufacturing, the improvement was even more notable with a 1.1 percent jump after a 0.8 percent gain in April.
Year-on-year, labor productivity has soared, the 6.1 percent increase in the first quarter-up from 5.6 percent in the prior quarter, which means very healthy economic growth with almost no inflation worries. It is a major gauge of future inflation because wage costs, which account for two-thirds of product costs, are barely rising.
Manufacturing hiring is also robust. Growth in new orders and employment highlighted another very strong ISM manufacturing report in May. New orders held steady at 65.7, a reading well over breakeven 50 and the third in a row over 60. Employment index was last above 60 back in May in 2004. May's reading came in at 59.8 for a 1.3 point gain to indicate significant acceleration in hiring.
In a sign that employers are hiring more permanent workers, the number of persons employed part time for economic reasons (some-times referred to as involuntary part-time workers) declined by 343,000 in May to 8.8 million. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job. This decline was more good news. The all time record of 9.24 million was set in October.
The unemployment rate decreased to 9.7 percent, and the lower number of part time workers (for economic reasons) helped to push down the total unemployed U-6 labor category to 16.6 percent (from 17.1 percent), which is still a large number.
But the ultimate sign of a sustained recovery is a declining inventories-to-sales ratio, which signals that pent-up demand is growing; which is why production is growing, employers are hiring again.
And key sectors of the economy are lining up together in what hopefully will be a sustained cycle of inventory replenishment. Business inventories rose 0.4 percent in March on top of a 0.5 percent gain in February and a smaller gain in January. In what is especially good news, its components show nearly uniform increases in March: manufacturers up 0.3 percent, retailers up 0.4 percent, wholesalers up 0.4 percent. In fact, we are already in a sustainable recovery.
Harlan Green © 2010
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