Thursday, February 03, 2011

Employment Situation: A Lighter Shade of Gray

by Bill McBride on 2/03/2011 02:36:00 PM

The numbers are grim: almost 15 million Americans are unemployed, another 9 million are working part time for economic reasons, and about 4 million more have left the labor force since the start of the recession (we can see this in the dramatic drop in the labor force participation rate). Of those unemployed, 6.4 million have been unemployed for six months or more.

And the situation is also bleak for many of those who have jobs. A recent report showed most of the employment growth has been in low-to-mid wage industries (more skewed than in previous recoveries). And real earnings for most Americans have been under pressure for some time.

Against that backdrop, the recent spate of good employment news might seem almost insignificant, but it is a start.

Tomorrow the BLS will release the January Employment Situation Summary at 8:30 AM ET. The consensus is for an increase of 150,000 payroll jobs in January, and for the unemployment rate to increase slightly to 9.5% (from 9.4% in December).

That would be an improvement – the U.S. economy only added about 95,000 jobs per month in 2010 - however 150,000 additional payroll jobs is still pretty small compared to the number of unemployed. And that is barely enough to keep up with the growth of the working age population.

So while news reports might suggest “improvement”, many of the unemployed and marginally employed will not see it, at least not yet, and probably not for some time.

Here is a look at a few of the recent employment related reports:

• ADP reported Private Employment increased by 187,000 in January, and has averaged 217,000 over the last two months.

• Weekly initial unemployment claims were down significantly over the last few months. The graph is here. The average over the last 5 weeks was 425,000 initial claims per week, down sharply from the October the average of 456,000.

• The ISM indexes showed significantly stronger employment growth. The ISM manufacturing manufacturing Employment Index registered 61.7 in January, 2.8 percentage points higher than the 58.9 percent reported in December. The ISM Non-manufacturing employment index showed faster expansion in December at 54.5%, up from 52.6% in December. (graph is here)

• All of the Regional Fed manufacturing surveys reported employment expansion.

Also Madeline Schnapp, Director, Macroeconomic Research at TrimTabs Investment Research sent me the following note:

Our withholding tax model for jobs was crippled this past month by the withholding tax changes (2% payroll tax deduction). We did come up with a "guestimate" for January job growth of 175,000 to 215,000 new jobs using data from the last week of January (poor substitute) and all of the other jobs related indicators we track. Those indicators are very bullish. In sum, from a qualitative (not quantitative) viewpoint, we expect the job growth reported by the BLS to surprise on the upside.
In addition to the above indicators, Ms. Schnapp noted:
• The TrimTabs Online Job Postings Index rose 4.5% in January, the biggest gain since October 2010.

• Commercial and industrial loan growth accelerated to 1.0% in the past month. Stronger commercial and industrial loan growth often accompanies a pickup in job growth.

• The Federal Reserve’s Senior Loan Officer Opinion Survey reported that demand for business loans picked up in Q4 2010, and demand for commercial and industrial loans was the strongest since 2006.

• The Federal Reserve’s “Beige Book” reported that labor markets improved in most districts. Temporary staffing firms in six of 12 districts gave positive reports. Eight of 12 districts reported that their business contacts planned to hold hiring steady or increase hiring in 2011.

• Personal consumption expenditures rose 4.4% in Q4 2010, the largest increase since Q1 2006. Meanwhile, final sales increased 7.1%, the strongest growth since 1984.
We are a long way from blue skies, but maybe we are seeing a lighter shade of gray.

A few notes:
1) The BLS will release the annual benchmark revision tomorrow. Last October the BLS released the preliminary annual benchmark revision of minus 366,000 payroll jobs as of March 2010. Usually the preliminary estimate is pretty close to the final benchmark estimate.
2) Some people are concerned about the impact of the January snow storms on the employment report. If there is a significant impact, the BLS will mention it in the release.
3) My forecast is for something close to 200 thousand private sector jobs on average per month this year.

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