Where Are the Jobs--Part II?

 Financial FAQs

“Job creation took a step back in 2025, with private employers adding 398,000 jobs, down from 771,000 in 2024. While we've seen a continuous and dramatic slowdown in job creation for the past three years, wage growth has remained stable.” ADP

FREDpayrolls

The FRED (St. Louis Federal Reserve) graph tells it all. Job formation has almost disappeared in the Trump economy. It’s not only the shutdowns, which have delayed the official U.S. unemployment report that was due for January, but past months as well, so private payroll data processors like ADP fill in the knowledge gap.

But we know from the latest FRED graph of private payroll hiring that private employers are barely hiring. Just 74,000 jobs were created in November 2025 and 22,000 in January, as reported by ADP.

So the GDP growth spurts last fall 2025 are from the $ trillions being invested in AI energy centers, not in corporations expanding their workforce. Corporations are laying off workers instead.

The best examples are Amazon and now the Washington Post. The NYTimes just reported that the Washington Post told employees on Wednesday that it was beginning a widespread round of layoffs “that are expected to decimate the organization’s sports, local news and international coverage.

“The company is laying off about 30 percent of all its employees, according to two people with knowledge of the decision. That includes people on the business side and more than 300 of the roughly 800 journalists in the newsroom, the people said,” said the NYTimes

CBS News reports that in 2025, companies directly pointed to their use of AI in announcing 55,000 job cuts — more than 12 times the number of layoffs attributed to AI just two years earlier, according to outplacement firm Challenger, Gray and Christmas. Of those job losses, 51,000 were in tech, with most of the cuts concentrated in tech-heavy states such as California and Washington.

The main culprit are the tariffs that Trump is using to coerce concessions from foreign governments, but it is doing the most damage to Americans. U.S. vehicle sales plunged in January, for example. Automobile sales increased at an annual rate of 14.9 million in January, down 7% from 16.1 million in the final month of 2025, according to Wards Intelligence and profit losses of $billions have already been reported by GM and Ford due to the higher tariffs on aluminum and steel.

Consumers above all are reacting to the sudden changes in the employment picture. The Conference Board voiced their concerns in the headlineConfidence collapsed to lowest point since 2014, surpassing pandemic depths: “The Conference Board Consumer Confidence Index® fell by 9.7 points in January to 84.5 (1985=100), from an upwardly revised 94.2 in December. A 5.1-point upward revision to December’s reading of the Index resulted in a slight increase last month, reversing the initially reported decline. However, January’s preliminary results showed confidence resumed declining after a one-month uptick.

So unemployed workers are now suffering under both the rising inflation from the tariffs and AI replacing many of their jobs.

It’s not a pretty picture, while we are still waiting for the Supreme Court to rule on whether most of Trump’s tariffs are even legal. It much safer to do nothing in such circumstances—consumers to hold on to their savings and employers to replace their workers with more technology.

Harlan Green © 2026

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Strong July Retail Sales

Financial FAQs

FREDretailsales

The DOW plunged more than 400 points at Tuesday’s opening, because retail sales were “weaker”, per the consensus estimate of pundits. But it was in large part because of lower new car sales, due to a shortage of computer chips.

In fact, the demand for both new and used cars is soaring, and retail sales are holdingup. The average new car price hit a record $38,255 in May, according to JD Power, up 12 percent from the same period a year ago, and the cost of used cars and trucks has soared by 32 percent in the first six months of 2021. By contrast, their prices fell by an average of 0.6 percent a year from 2009 to 2019.which is a better way to look at sales activity, says MarketWatch.

And if the pundits looked just a bit further, they would know that auto manufactures are racing to meet the demand by not taking the normal summer factory shutdown to retool for new models. So it is really good news that demand is running so high for autos, and restaurants and gasoline products, as consumers are traveling more in the summer months.

Overall U.S. industrial production rose a seasonally adjusted 0.9 percent in July, the Federal Reserve reported Tuesday, and manufacturing activity alone rose 1.4 percent in July, boosted by an 11.2 percent jump in output of those motor vehicles and parts.

Even then auto production remains about 3.5 percent below its recent peak in January. It will take several months to play catchup, when additional computer chips used in autos are manufactured. US chip manufacturers such as Intel are part of the chip shortage caught by the surprise surge in demand.

But as the long-term FRED graph shows, retail sales are still far above the historical five percent annual increase.

“Advance estimates of U.S. retail and food services sales for July 2021, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $617.7 billion, a decrease of 1.1 percent from the previous month, but 15.8 percent above July 2020, reported the US Census Bureau.

So market investors in particular should take a step back from the unrelenting news headlines that react to every piece of bad and good news without looking between the lines.

The U.S. economy grew at a blistering pace in the spring and repaired most of the damage caused by the pandemic thanks to widespread coronavirus vaccinations and a nearly full reopening of the economy, as I said recently.

The Q2 GDP report verifies that the American economy is capable of easily accomodating the Biden administration’s proposed infrastructure and American Family plan spending of some $4 trillion in additonal government investments should they be passed in their present form.

We still cannot ignore the soaring hospitalizations from the Delta variant that will slow down some economic activity through the fall. We won’t know until school openings how the Delta variant will affect school children and teaching staff, for starters. And many essential workers are hanging back because of the variant’s surge as well.

Covid Tracker

The CDC says, “The current 7-day moving average of daily new cases (114,190) increased 18.4% compared with the previous 7-day moving average (96,454). The current 7-day moving average is 66.3% higher compared to the peak observed on July 20, 2020 (68,685). (But) The current 7-day moving average is 65.0% lower than the peak observed on January 10, 2021 (254,023).”

So we can only hope that the latest rise in vaccinations and addition of a third booster shot for the most vulnerable that is already widely available in pharmacies will prevent further damage.

Harlan Green © 2021

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Retail Sales Soaring

Financial FAQs

Econoday.com

Retail sales rose in June for the fourth month in a row, quieting concerns that the trade wars and weaker manufacturing output would also drag down consumer spending.

The most surprising strength in the report was a 0.7 percent jump in auto sales. Nonretailers (Internet), which continue to feed off of traditional retailers such as department stores, according to Econoday, was also surprising with a 1.7 percent for the second month in a row.

And discretionary spending, such as for restaurants, was up 0.9 percent following prior gains of 1.0 percent, 0.7 percent, and 0.8 percent. “This shows that consumers, flush with confidence and fully employed, are enjoying themselves,” said Econoday.

The list of strengths goes on with both furniture and building materials snapping back with 0.5 percent gains that point to strength for residential investment. Clothing stores saw sales also rise 0.5 percent as did health & personal care stores.

More good news was today’s Federal Reserve Industrial Production report that showed renewed strength in manufacturing—particularly in motor vehicle production. It’s still far below last year’s manufacturing output, however, that was mainly due to the 2017 tax breaks that raised profits.

Manufacturing is by far the largest component in this report and June's results are almost uniformly strong, led by a 2.9 percent monthly rise for motor vehicle production and a 0.7 percent rise for selected hi-tech. Business equipment production posted a second strong increase at 0.5 percent that follows May's 0.4 percent rise in gains that should ease the Fed's concerns over business investment.

Construction supplies also show strength, up 0.5 percent and 0.6 percent in the last two reports in what are positive signals for construction demand that reinforces the increased furniture and building materials gains in retail sales.

One month’s gain in manufacturing does not constitute a trend, however. But consumers are flush and confident, so economists may begin to raise their growth forecasts if this trend continues.

Harlan Green © 2019

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Weaker Employment Report Due to Higher Tariffs?

Financial FAQs

MarketWatch.com

Total nonfarm payroll employment increased by 155,000 in November, and the unemployment rate remained unchanged at 3.7 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in health care, in manufacturing, and in transportation and warehousing.

The slightly weaker report showed little inflation that might keep the Fed from raising interest rates further in their December FOMC meeting. The Federal Reserve may not want to push rates higher because of the ongoing trade wars that threaten jobs and growth next year. This was brought out in the wild stock market gyrations of late. The DOW down plunged more than 1,000 points this week, erasing all its gains for the year, in part due to fears of upcoming layoffs due to the rising tariff costs.

Average hourly earnings increased just 0.2 percent, which was on the low side of expectations. The year-on-year rate for earnings held unchanged at 3.1 percent, again on the low side of expectations, which should keep the retail (CPI) inflation rate in the 2 percent range.

Another sign of moderation comes from average weekly hours which, at 34.4, are at the low end of expectations. Manufacturing hours and overtime are steady, which with the 27,000 jobs created show moderate results for the upcoming industrial production report.

Overall manufacturing activity as detailed in the November ISM Manufacturing Index was extremely strong with new orders, at 62.1, up 4.7 points, back over 60 in one of the longest runs in the long history of this report that it had held for a year-and-half. This may not continue if the steel and aluminum tariffs, however, are not eventually eased that are a large part of manufacturing costs.

The number of long-term unemployed (those jobless for 27 weeks or more) declined to 62.9 percent, and the employment-population by 120,000 to 1.3 million in November. These individuals accounted for 20.8 percent of the unemployed.

Both the labor force participation rate, at 62.9 percent, and the employment-population ratio, at 60.6 percent, were unchanged in November, said the BLS. The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers), at 4.8 million, changed little in November. These individuals, who would have preferred full-time employment, were working part time because their hours had been reduced or they were unable to find full-time jobs.

The report wasn’t strong enough to prevent expectations of further economic uncertainty amid the ongoing trade war with China, in particular, that has been given a 90-day reprieve at the G20 economic summit. The so-called reprieve did nothing for the existing tariffs in steel and aluminum initiated by Trump and agricultural tariffs enacted by China in response, which are boosting costs for both manufacturers and consumers.

Are we about to enter another recession, the sixth recession in two decades? Five have occurred since 1981, including the Great Recession. Two were during Ronald Reagan’s Presidency (1981, 1983), one under GHW Bush (1991), and two under GW Bush (2001, 2007). All have occurred under Republican administrations, in other words, administrations noted for cutting taxes, but not spending. Are we seeing a pattern?

The Trump administration is trying the opposite tack. It has cut taxes, but erected higher trade barriers. The results are already clear. General Motors just announced it is poised to end production at five plants in the U.S. and Canada, kill off several passenger cars – including the Chevrolet Impala – and slash 15 percent of its salaried workforce in a sweeping cost-cutting plan designed to boost profits and adjust to America's changing tastes in vehicles, as I mentioned last week.

The move — part of a sweeping cost-cutting plan unveiled Monday — comes as Americans are abandoning passenger cars in favor of crossovers, SUVs and pickups, said USA Today. But the underlying reason is that GM and Ford announced the 25 percent boost in steel tariffs, and 10 percent boost in aluminum tariffs enacted by the Trump administration will cost each an extra $1 billion in production costs next year.

Higher tariffs will not bring more jobs home—especially those higher-paying manufacturing jobs we were promised—if those tariffs aren’t eventually removed.

Harlan Green © 2018

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Boom Times for Manufacturing

Popular Economics Weekly

A measure used by economists to track investment, known as core capital orders (minus defense and aircraft), rose 4 percent in the 12 months ended in September. It has risen 1.3 percent for three consecutive months, according to the Commerce Department.

Core orders are spent domestically for the most part, so this is happening just when it’s needed—to rebuild the hurricane and wildfire damaged states of Florida, Texas, California, as well as U.S. Territories of Puerto Rico and the Virgin Islands.

Graph: FRED

It will also boost economic growth, since it boosts labor productivity, one of the two components that determine GDP growth. The other component is population growth, but the U.S. population is barely growing, as is immigration that supplies the majority of new workers.

The main beneficiary of higher capex spending will be manufacturing, which is already showing improvement with a cheaper dollar exchange rate that has boosted exports.

And today we have durable-goods orders that rose 2.2 percent in September, beating forecasts. Durable goods are all goods that last three or more years—including auto vehicles, defense and aircraft. These orders have climbed 7.8 percent in the past year, the fastest pace since early 2012.

“Strength in the manufacturing sample is centered in new orders and employment,” says Econoday. “Of special note are unusual delivery delays, which help lift the composite indexes and are the result of lingering disruptions and stretched workloads following Hurricanes Harvey and Irma.”

So we are seeing effects of the hurricanes in boosting economic activity. The role of capital expenditures is especially important, as it means the replacement of much of our aging infrastructure as well.

And don’t forget at least 1 million motor vehicles were destroyed by the hurricanes that will need to be replaced. But buyers shopping for used replacement vehicles should be aware of the pitfalls of those storm-damaged cars that are put back on the market.

Consumers should take precautions like getting a history of repairs and checking the VIN number in the National Insurance Crime Bureau and National Motor Vehicle Title Information System databases, reports Fortune Magazine. Even without a database, strange stains and smells can be a red flag that a car has weathered a flood. Consumers buy a used car should check for signs of water damage — mineral deposits, mildew and the smell of mold or overpowering scents of cleaning supplies that may be trying to mask it.

Harlan Green © 2017

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Slow Q1 GDP Growth Means What?

Financial FAQs

Real gross domestic product (GDP) increased at an annual rate of 0.7 percent in the first quarter of 2017, according to the "advance" estimate released by the Bureau of Economic Analysis. In the fourth quarter of 2016, real GDP increased 2.1 percent.

Graph: BEA

The first estimate of first quarter economic growth usually means little. Consumer weren’t spending, and they never seem to spend much in Q1, as in past years, as the BEA graph show. But with consumer confidence still sky high because of optimism that President Trump and Congress might still agree on some stimulus, spending may pick up.

There were signs of higher growth in Q1 outside of the consumers, particularly in real estate. “The deceleration in real GDP in the first quarter reflected a deceleration in PCE and downturns in private inventory investment and in state and local government spending that were partly offset by an upturn in exports and accelerations in both nonresidential and residential fixed investment,” said the BEA.

So consumer sentiments can be deceptive, even misleading, given the lack of higher consumer spending in Q1. The Conference Board reported the consumer confidence index eased back to 120.3 in April vs a revised 124.9 in March with these two months the best of the 8-year expansion. “Readings remain strongly favorable including jobs-hard-to-get which is steady at a very low 19.1 percent and points to strength for the April employment report,” said Econoday. 

Weak vehicle sales are a major negative in the quarter's consumer breakdown, pulling durable sales down at a 2.5 percent rate and offsetting a 1.5 percent rise in non-durables and a slow 0.4 percent showing for services. Weakness in consumer spending is worrisome but not other data in the GDP report. Residential investment posted a second straight very strong quarter, up 13.7 percent. And in a rare show of strength, nonresidential investment, which has been subdued, jumped at a 9.4 percent rate with both structures and equipment showing unusual strength. A surge in mining investment is a standout of the report, said the BEA.

Graph: Econoday

There are more signs that growth could pick up in coming quarters. The Institute for Supply Management’s Chicago Business Barometer, a proxy for Midwest growth, ticked up 0.6 Points in April to 58.3 in April from 57.7 in March, the highest level since January 2015. New orders are the highest since May 2014, and in a sign of ongoing strength deliveries continue to slow. 

Optimism among firms about business conditions rose for the third month in a row. Three of the five Barometer components led April’s increase, with Production and Order Backlogs receding, said the report. Third Consecutive Rise in Business Confidence, New Orders Highest Since May 2014, Inflationary Pressures Ease Slightly, Prices Paid fall, as the MNI Chicago Business Barometer increased to 58.3 in April from 57.7 in March, the highest level since January 2015.

“The April Chicago report showcased another impressive month, with firms reporting solid growth. Rising demand and firm production led to a pick-up in hiring by firms. Although the employment indicator has been bumpy, in and out of contraction, if the current month’s rise is sustained, it could provide a boost to the labor market,” said Shaily Mittal, senior economist at MNI Indicators, compiler of the report.

But optimism doesn’t always translate to spending, as we know from past reports. Consumers’ incomes keep rising and were very solid in the fourth quarter at a 3.5 percent pace, but rose at only 0.3 percent in first-quarter 2017 on weak vehicle sales and lower heating bills. This is by far the worst showing since no change in fourth-quarter 2009, and would be the lowest showing for consumer spending in 5 years. What will it take for consumers to spend again?

Harlan Green © 2017

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2017 Manufacturing Off To Good Start

Popular Economics Weekly

What is happening with manufacturing? The ISM manufacturing index jumped 1.7 points in February to a 57.7 level that beats the consensus by 1.3 points. This is the strongest rate of monthly growth in composite activity since August 2014. So does it mean Trump can keep his promise of bringing back those blue collar jobs lost to the likes of China?

It’s in spite of higher dollar exchange rates that have boosted consumer spending because of cheaper import prices, which dropped GDP growth in Q4 and the year, to 1.9 percent. (Import sales subtract from GDP growth.) So what gives? Is it the Trump euphoria over his promise to cut taxes and regulations?

Graph: Econoday

The report in fact is filled with superlatives led by a 4.7 point jump in new orders to 65.1. This rate of monthly growth was last matched in December 2013 and last exceeded in August 2009. Backlog orders jumped 7.5 points to 57.5 in a reading last exceeded in March 2014. Production is also very strong, up 1.5 points to a 62.9 level that is the best since March 2011.This is while consumer confidence index continues to make new post-election highs and new cycle highs at a 114.8 February level, which beats consensus estimates and makes for a strong 3.2 point gain from January.

But beware, says Econoday, “This report perhaps is the greatest expression yet of post-election strength in anecdotal surveys, strength that has yet however to find its way to actual government data on the factory sector which have been consistently soft.”

The data includes just released auto sales, softer at 17.5 million units. Wrightson ICAP had estimated a seasonally adjusted annualized sales pace of 17.7 million.  That would still be a little below the December/January average of 17.9 million, but would represent an increase of roughly 1 percent in both month-to-month and YOY terms.  And it would be about 1.4 percent above the actual 2016 total of 17.46 million, which was a record high.

Graph: Econoday

Then there is the January durable goods report for items that last 3 or more years. It shows the usual volatility behind which are sagging numbers for key readings, said Econoday. Aircraft, both domestic and defense, skewed durable goods orders sharply higher in January, up 1.8 percent to hit the consensus. Not hitting the consensus, however, are orders that exclude aircraft as well as all other transportation equipment. This reading fell 0.2 percent to come in well below Econoday's low estimate for a 0.2 percent gain.

The worst news in the report is a 0.4 percent decline in orders for core capital goods (nondefense ex-aircraft). This ends 3 months of strength for this reading and pulls the rug out from expectations for a first-quarter business investment boom as indicated by business confidence readings.

And longer term investments happen when core capital expenditures are on the increase. So will the manufacturing boom continue?

Harlan Green © 2017

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Record Retail Sales, Higher Growth Ahead?

Financial FAQs

It looks like Q4 GDP could be higher than the Third Quarter’s initial estimate of 2.9 percent growth. That’s because retail sales and wholesale inventories, both major contributors to growth, are surging.
Retail sales jumped 0.8 percent in October with September revised 4 tenths higher to plus 1.0 percent. The consumer started the fourth-quarter better than expected and finished the third-quarter even stronger than that, according to BEA’s revision.

Graph: Econoday

The data show wide gains for both months led by the most important component of all, autos which rose 1.1 percent in October on top of September's 1.9 percent surge. Building materials & garden equipment are also very strong, up 1.1 percent following September's 1.8 percent gain with both pointing to strength for residential investment. Non-store retailers are also a standout and reflect strength in e-commerce, up 1.5 percent and up 0.9 percent in the two months.

Graph: Econoday

And manufacturing activity was also strong, Year-on-year, all vehicle production is up a very solid 5.0 percent and eclipsed only by the 6.7 percent gain for the selected hi-tech component which rose 1.0 percent in October to extend its run of impressive gains, according to Econoday. Another positive is a 0.2 percent gain for business equipment which has otherwise been weak most of the year.

Midwest manufacturing is also doing better. Kansas City Federal Reserve manufacturing activity report said, “This was the second consecutive month of rising factory activity in the Tenth District, the first time that has happened in nearly two years,” according to Kansas Fed chief economist Chad Wilkerson.

But what will happen with rising interest rates and a stronger dollar? Long term bond rates have jumped almost 1 percent since P-Elect Trump announced his very ambitious infrastructure upgrades, but which Fed Chair Yellen threw some cold water on yesterday in congressional testimony. She asked, Where will the workers come from to build it when we are already at full employment?

Another economic indicator reported the U.S. is growing at a moderate pace and is likely to do so through early 2017, according to the Conference Board’s Index of Leading Economic Indicators (LEI). The LEI is an index that measures the nation’s future economic health. It rose 0.1 percent in November after a 0.2 percent gain in the prior month, the Conference Board said Friday.

“Although its six-month growth rate has moderated, the index still suggests that the economy will continue expanding into early 2017,” said Ataman Ozyildirim, economist at the board. Its measure of current economic conditions rose 0.1 percent, the “lagging” index of past activity increased 0.2 percent, meaning current activity has slowed.

We therefore believe that Q4 will shape up to have perhaps 3 percent plus GDP growth. Will this extend into next year? It depends on how extensive and expensive will be the Trump infrastructure plans, because it will certainly boost long term rates and inflation.

But rising interest rates and higher inflation are actually signs of higher economic growth.  Fed Chair Yellen seemed to remain cautious about the need to boost Federal Reserve short term rates in her latest congressional testimony, even though higher inflation and growth seem inevitable.

Harlan Green © 2016

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Motor Vehicle Sales Boost Retail, Manufacturing

Financial FAQs

One of the first hard indications on the September economy is strongly positive as overall unit vehicle sales surged 4.7 percent to a 17.7 million annualized rate. This will boost the vehicle component of the September retail sales report and also will give a lift to third-quarter GDP estimates, which are currently in the mid-two percent range.

Graph: Calculated Risk

Strength is centered in North American-made models where the rate rose 6.0 percent to 14.2 million for domestic sales. The strength ultimately reflects the health of the jobs market and will likely raise talk of strength in Friday's employment report.

And initial weekly jobless claims keep moving lower in what is definitive evidence of labor market strength. Initial claims in the October 1 week fell 5,000 to 249,000, breaking the 250,000 barrier for the second time this year, though the unemployment rate rose slightly to 5.0 percent and 156,000 new payroll jobs were created in September, according to the Labor Dept.

The 4-week average, 2,500 lower at 253,500, is down for a very convincing 7th week in a row, says Calculated Risk. Continuing claims are likewise moving lower, down 6,000 to 2.058 million in lagging data for the September 24 week. There are no special factors in today's report, one where all readings are at or near historic lows.

Both U.S. manufacturing and non-manufacturing activity picked up as well. largely due to the strength in vehicle sales, which means retail sales overall are healthy. ISM's manufacturing September index bounced more than 2 points higher to a much better-than-expected 51.5. New orders are the most important of all readings and they lead the September report, rising 6 points to a very solid 55.1.

 Export orders are also respectable and steady at 52.0 while the draw in total backlog orders slowed, with this index up 4 points and nearly hitting breakeven 50 at 49.5. Production also improved in the month, up 1.4 points to 52.8, as did employment which, at 49.7, is also nearly at 50. This is a positive report, pointing to rising though no more than moderate strength for the nation's factory sector.

 

Graph: Econoday

 The ISM non-manufacturing composite index shot up to 57.1 from August's recovery low of 51.4 which now looks like a very odd outlier for this report which otherwise has been consistently strong this year. And new orders are especially strong, up nearly 9 points to 60.0 which points to brisk activity for other readings in the months ahead. Employment is also a very solid plus in the report, up 6.5 points to 57.2 which is the strongest rate of growth since September last year.

This is while the third estimate of Q2 Gross Domestic Product inched up to 1.4 percent from the prior 1.2 percent estimate, but Q3 should begin to show some strength, after 7 consecutive quarters of subpar growth.

Could it reach 3 percent?  Only if the Fed won't raise interest rates at all this year, as it will crimp manufacturing, which relies on lower export prices, which relies on a cheaper US dollar, which relies on the current interest rate low.

Harlan Green © 2016

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The Fed Worried About Continued Growth

Popular Economics Weekly

Fourth Quarter Gross Domestic Product growth was a bust. What does that say about 2013? Are consumers tapped out, and capital expenditures (capex) shrinking, the two main drivers of economic growth? It doesn’t seem so, as long as the Federal Reserve keeps interest rates this low.

The Federal Reserve was worried about diminished growth at its January FOMC meeting, and so voted to continue its Quantitative Easing programs.

“The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction,” said the FOMC press release of its meeting. “Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.”

And Barron’s Magazine recently predicted an increase in capex spending this year, citing Standard and Poor’s estimate of 9.9 percent growth, vs 6.9 percent last year. It also cites ultra-low interest rates that provide a double nudge: punitive returns for companies that continue to hoard cash and alluring rates on equipment loans. Also, the fiscal cliff deal in early January extended a tax perk called accelerated depreciation, which sharply increases the portion of capex that companies can write off against income right away.

And consumers are spending like their recession is over. Consumer debt continues to grow, especially for autos and student loans, while they continue to pay down revolving credit card debts.

Graph: Econoday

The revolving credit component (primarily credit card balances) declined $3.6 billion in December.  Given the healthy retail sales figures for December, consumers are still relying on cash.  This may be due to consumers continuing to mend their credit and/or due to credit card companies keeping credit tight.

Graph: Econoday

The Commerce Department said consumer spending was moderately strong in December.  Retail sales gained 0.5 percent after a 0.4 percent rebound the month before, with automobiles leading the way. That’s 6 percent per year, close to normal sales’ growth. Without autos and gasoline, strength in the core was also broad based.  Gains were led by furniture and home furnishings, food services and drinking places, and health and personal care.  A decline was seen in electronics and appliance stores.

One caveat: The Fed seems to have painted itself into a corner with its stated mandate of 2 to 2.5 percent inflation, as we said last week. It’s a scenario eerily similar to Germany’s fixation on inflation since its 1920s hyperinflation, and the reason Germany is punishing the Mediterranean countries with its austerity demands. Though U.S. inflation is running below 2 percent at the moment, it could rise with short term rises in gas prices and cause the Fed to terminate its QE program.

What about 2013? We think zero growth of Q4 Growth Domestic Product was an aberration and will probably be revised upward in the next estimate. It looks like the fiscal cliff negotiations, and higher payroll taxes aren’t stopping consumers, or companies from spending more than originally anticipated.

Harlan Green © 2013

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Consumers Are Doing Fine

Financial FAQs

Consumers seem to be doing fine, in spite of their worries about jobs in the latest University of Michigan sentiment survey, the economy and budget deficits (their own more than governments’). June average hourly earnings improved to a 0.3 percent boost from 0.2 percent in May, in the latest unemployment report.  And two leading indicators for hiring were up.  First, the average workweek edged up to 34.5 hours from 34.4 in May.  Second, temp worker hirings were up 25,000 after a 19,000 boost in May.  This should presage more job creation in the fall.

Graph: Calculated Risk

Even though job creation was sluggish in June so that the unemployment rate didn’t change at 8.2 percent, there are some positive signs for manufacturing and personal income. Strength was in the goods-producing sector. Employment in this sector rebounded 13,000 after a 21,000 decline in May.  Manufacturing increased 11,000 after a 9,000 rise in May.  Construction posted a modest 2,000 gain after dropping 35,000 the month before.

Either consumers are little more optimistic about the economy than they admit in confidence surveys or cars are getting too old and need replacing or some of both.  Regardless, demand picked back up in this portion of the consumer sector in June.

Graph: Econoday

Unit new motor vehicle sales rebounded 2.2 percent to a 14.1 million annual rate from May's rate of 13.8 million.  Strength was in domestic cars which jumped 5.5 percent and in domestic light trucks, up 3.6 percent, for combined domestic units of 11.1 million annualized versus 10.6 million in May.

So personal expenditures are still increasing, up almost 2 percent, which is why Gross Domestic Growth is also up 1.9 percent this year to date. It means consumers are still cautious, as not enough jobs are yet being created.

Lastly, the surest sign of consumer health is the Federal Reserve’s monthly Consumer Credit report, which totals all consumer borrowing. Borrowing is up a whopping 8 percent in May, most of it revolving, credit card debt. This is the highest total since 2007, before the Great Recession, and double recent borrowing, which means consumers are feeling confident enough to actually increase their spending. Consumer borrowing had averaged 4 to 5 percent increases since 2007.

We will have more to report on industrial production, retail and housing sales next week. They may show that although the economy has slowed during the summer months, growth should pick up in the fall.

Harlan Green © 2012

Employment Report Means Holiday Cheers!

Popular Economics Weekly

Not only were the employment numbers for the past 3 months much higher than originally estimated, but job openings are growing. All we need now is for consumers’ credit conditions to ease to bring back their confidence.

Much of the pessimism and predictions of a second recession were based on faulty data, and that has caused lenders to pull back. For instance, instead of 0 job growth in August that scared the markets, more than 104,000 jobs were created after ‘revisions’ to the seasonal adjustments that we have discussed in past columns. In fact, payroll jobs in October posted a gain of 80,000 after rising a revised 158,000 in September (originally 103,000).  So revisions for August and September were up net 102,000.

In fact, consumers are spending for the holidays as if the Great Recession is finally over, in spite of still uncertain income and credit conditions. The caveat: It took 23 months for consumption per person to return to its pre-recession level in earlier recessions. At 42 months, personal consumption has not yet returned to 2007 pre-recession levels, though some of that consumption was fueled by the housing bubble and may not be desirable, says Kevin Lansing of the San Francisco Federal Reserve.

Graph: Calculated Risk

Firstly, the number of job openings in September was 3.4 million, up from 3.1 million in August. Although the number of job openings remained below the 4.4 million openings when the recession began in December 2007, the level in September was 1.2 million higher than in July 2009 (the most recent trough for the series). The number of job openings has increased 38 percent since the end of the recession in June 2009, which tells us growth is picking up. We should therefore see 3 percent plus GDP growth for the rest of this year, at least, contrary to the Federal Reserve’s downwardly revised forecasts.

The consensus expected unemployment to be stuck at 9.1 percent instead of dropping to 9 percent in the Labor Department’s October household report, which tracks self-employeds as well.  The unemployment rate declined largely on a sizeable 277,000 boost in household employment which has posted significant increases for three months in a row.  The increases in August and September were 331,000 and 398,000, respectively.

And there is additional favorable news in the household survey.  Part-time employment for economic reasons is down and the duration of unemployment declined in October.  In nonagricultural industries, the number of those employed part time instead of full time for economic reasons dropped 328,000, says Econoday.

By downgrading its growth estimates, the Fed is leaving the door open for additional ease with the emphasis on significant downside risks remaining. For real GDP, the central tendency forecast for 2011 is now a 1.6 to 1.7 percent versus the prior range of 2.7 to 2.9 percent.  The large downgrade likely is due to a large downside miss to second quarter growth.  (But we believe growth will also be upgraded in coming months.) For 2012, forecast growth is 2.5 to 2.9 percent versus June’s 3.3 to 3.7 percent.   For 2013, forecast growth is 3.0 to 3.5 percent versus June’s 3.5 to 4.2 percent.   The Fed doesn’t see sustained growth until 2014—a range of 3.0 percent to 3.9 percent.

And early data for October on actual purchases by consumers indicate that this sector is doing better than suggested by surveys on the consumer mood, as we said.  Thanks to the one area where credit is easing, unit new motor vehicle sales rose 1.2 percent in October after surging 8.0 percent the month before. October’s sales pace was 13.3 million units annualized, compared to 13.1 million in September.

The bottom line is that credit is still being tightened in most areas, according to the Federal Reserve’s October 2011 Senior Loan Officer Opinion Survey on Bank Lending Practices. Fewer domestic banks eased standards and terms on commercial and industrial (C&I) loans over the third quarter compared with recent quarters, particularly on loans to large and middle-market firms, said the survey. And all of the domestic and foreign respondents that reported having tightened standards or terms on C&I loans cited a less favorable or more uncertain economic outlook as a reason for the tightening.

And so consumers will have to be patient, if they want to see credit standards easing for such as home loans. We hope the HARP II loan modification program that allows lowered payments and shortened payoff terms Fannie Mae and Freddie Mac-owned mortgages, though no principal reduction, will spur refinances and thus many to move out of their homes to find new jobs to be helpful.

The bottom line is that consumers are borrowing again, but for longer term purchases and still reducing their credit card debt, in part because banks are still restricting credit card use. Consumer credit expanded $7.4 billion in September benefiting once again from strength in nonrevolving credit, said the Federal Reserve’s latest Consumer Credit report. So-called installment loans outstanding, reflecting strong vehicle sales, rose $8.0 billion in the month to $1.66 trillion. This offsets another contraction in revolving credit, down $0.6 billion to $789.6 billion outstanding.

Harlan Green © 2011