Popular Economics Weekly
The jobs market is in full recovery mode this spring. March seems to be the month when shoppers begin to shop in earnest and employers are hiring again. Both the service and manufacturing sectors of the economy are surging, labor productivity is high, and retail sales have shot up.
Nonfarm payroll employment increased by 192,000 in February, and the unemployment rate fell to 8.9 percent from 9.0 percent, the U.S. Bureau of Labor Statistics reported today.
December and January payrolls were also looking better. The change in total nonfarm payroll employment for December was revised from +121,000 to +152,000, and the change for January was revised from +36,000 to +63,000. The only real weakness was in government employment, which fell by 30,000. Local governments, many struggling with budget pressure, have cut 377,000 jobs since September 2008.
Retailers cut 8,000 jobs. Payrolls in goods-producing industries rose by 70,000 last month, including 33,000 in manufacturing. The sector has added 195,000 jobs since December 2009.
Activity for the bulk of the economy accelerated further in February from an already strong pace, according to the ISM’s non-manufacturing report where the composite index rose three tenths to 59.7. This reading is important because the service sector is two-thirds of U.S. economic activity. Anything above a reading of 50 shows month-to-month growth and because it was above January also shows month-to-month acceleration.
February’s strength is centered in output readings including acceleration for business activity (akin to a production reading on the manufacturing side) and in employment which came in at 55.6 for a more than one point gain and the best reading of the recovery, according to Econoday.
The 2.6 percent increase in Q4 labor productivity also signaled that employee costs are at an all time low (so no inflation danger), while workers productivity is maxed out (why hiring is picking up).
Year-on-year, productivity was up 1.9 percent in the fourth quarter-down from 2.9 percent in the third quarter. This is the most obvious sign that worker productivity—output per worker-hour—is maxed out. It is taking more hours for a single worker to increase output further, in other words.
Overall, the productivity and cost numbers have been favorable toward corporate profits as companies have squeezed more out of workers not laid off during the recent downturn. However, many economists doubt this pattern can continue and firms soon will have to boost hiring to maintain output and revenue gains.
The best sign of increased hiring is in fact state filings of weekly initial claims for unemployment, which has been plunging. Pointing strongly to month-to-month acceleration for payroll gains, initial jobless fell a substantial 20,000 in the February 26 week on top of a 25,000 decline in the prior week. The number of claims, at 368,000, is the third sub 400,000 reading in the last four weeks (note the February 19 week was revised 3,000 lower to 388,000). The four-week average, down 12,750 to 388,500, is the first sub 400,000 reading of the recovery, according to Econoday.
Lastly, though the 4th Quarter GDP economic growth estimate was revised down slightly to 2.8 from 3.2 percent, final demand, its major component including all sales by domestic producers, jumped 6.7 percent. This is a combination of domestic sales and exports, which have also been surging.
We can therefore say that combined with ballooning retail sales—annualized motor vehicle sales have climbed above 13 percent with U.S. companies like GM showing 40 percent sales’ increases, that we are finally in full recovery mode.
Harlan Green © 2011