Employment Will Drive Recovery in 2012

Popular Economics Weekly

It seems the lingering doubts about better growth in 2012 have nothing to do with reality. Predictions that job growth may have slowed come from a recent uptick in weekly initial jobless claims, but such numbers are notoriously subject to revisions, while the Bureau of Labor Statistics’ Job Openings Layoffs and Transfer Survey (JOLTS) that measures actual job layoffs and openings says employment is surging.

Graph: Wrightson ICAP

Which should we believe? JOLTS, because it has shown steady improvement since its mid-2009 low, and isn’t subject to large swings! The hire rate has steadily improved to 3.3 percent from its 2.9 percent low, while the number of job openings has increased from 2.2m to 3.5m in February 2012.

There are other signs, as well. Calculated Risk reports the Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for March 2012. In the past month, the indexes increased in 48 states, decreased in one state (Rhode Island), and remained stable in one state (South Dakota), for a one-month diffusion index of 94.

Graph: Philadelphia Fed

This is a graph is of the number of states with one month increasing activity according to the Philly Fed. In March, 49 states had increasing activity, up from 47 in February. The number of states with increasing activity has been at or above 47 for the last seven consecutive months. The states with highest growth indexes are dark green.

And labor productivity has been sliding as employers continue to try to squeeze more out of their workers, who are already maxed out, instead of hiring additional workers. But the NFIB small business survey says small businesses which hire something like two-thirds of new workers have been adding workers.

The composite survey rose by one tenth of a point to 93.9, which left it just below the high point reached in last winter’s economic pick-up. The economic expectations index continued its recovery from last summer’s low point by five points, but the other measures that go into the headline index were mixed. Needless to say, tight credit conditions have been the biggest obstacle to small business growth.

Graph: Wrightson ICAP

One moderately encouraging aspect of the report is the fact that the credit expectations indexes held onto the previous month’s gains, according to Wrightson ICAP. “The indexes for current and expected credit conditions held steady at their December levels, which matched the best readings in those measures since the collapse of Lehman. Small business owners still view credit availability as somewhat restricted, but conditions have eased again since the summer,” said Wrightson ICAP.

Graph: Econoday

Lastly, the bears had to have been disappointed with the Conference Board’s latest Index of Leading Indicators (LEI) report—still no sign of pending collapse in the recovery. The index of leading economic indicators continues to signal healthy growth ahead. And signals outside this factor are also positive especially growth of building permits -- which is an important and hopeful signal of badly needed recovery for the housing sector. The stock market is also a positive as is the report's reading on lending conditions.

Harlan Green © 2012