February 3, 2011
STILL WAITING (AND HOPING) FOR A STRONGER LABOR MARKET
You can’t squeeze blood out of a stone and apparently you’ll grow old waiting for initial jobless claims to fall far enough, fast enough to inspire something more than fleeting confidence about the prospects for job creation. Ok, we're exaggerating, but anyone who's been watching the labor market these last several years understands the sentiment.
Today’s update on weekly claims for new unemployment benefits sets us up once again for thinking that better days are just around the corner for payrolls. New claims dropped by a hefty 42,000 last week on a seasonally adjusted basis, according to the Labor Department. That’s one of the biggest weekly declines in recent history, but it’s not likely to bring many cheers from the crowd. One reason is that it comes directly after the previous week’s huge gain. Even worse, the progress that was evident for a time in jobless claims late last year seems to have stalled.
The trend, of course, is far more important for this volatile series than any one data point, but there’s not much meat on this bone. As the chart below shows, the four-week moving average of new claims (red line) has ticked up recently. That’s discouraging, and for more than the obvious reason.
The last several months have witnessed an acceleration in the broad economy, the labor market and real estate excluded. As we observe in the latest issue of The Beta Investment Report, the economy closed last year on a strong note. In fact, our in-house measure of the broad economic trend rose in December (the last month with all major economic reports published) by a strong 2.1%. That’s the best month since the recession formally ended in June 2009 and the highest monthly increase in over a decade. Our benchmark of leading indicators performed even better in December, gaining over 3%.
Another way to measure the general drift in the economic trend is to monitor monthly changes in a broad sweep of economic indicators. By that standard, it's also clear that the forces of growth prevailed in the final months of 2010. As the second chart below shows, more than 80% of the economic stats regularly analyzed in The Beta Investment Report posted a gain in December—the highest ratio in four years.
There are signs that the recovery momentum has spilled over into 2011, as the thaw in commercial lending and the surge in manufacturing activity last month suggest. But the conspicuous missing link to what would almost surely be a far stronger and more convincing recovery: jobs.
Yes, today's drop in jobless claims is welcome news. But the absence of improvement in the level of new claims in late-2010 is troubling. If progress in the labor market can suck wind in the face of potent revival elsewhere in the broad economic trend, that's a sign that payrolls growth will remain sluggish, even as the second anniversary of the recession's formal end approaches.
Will tomorrow's jobs report for January tell us different? Not really, or so yesterday's ADP Employment Report implies. The ADP numbers don't paint a terribly strong picture for January private payrolls. Ditto for the consensus forecast that private payrolls will post a modest net increase of 163,000 in tomorrow's update from the government, according to Briefing.com.
Yes, the economy is creating jobs. Payrolls rose in each and every month last year. But it's a tepid recovery, which raises the question of whether it threatens the expansion in the non-employment corners of the economy? For the moment, it's a theoretical question, since the non-employment profile of the economy (housing excepted) appears to be making headway. Therein lies the hope that better days lie ahead for employment.
Jobs, after all, are usually among the last points of revival after a recession. That standard is alive and well this time around. Meantime, hope continues to spring eternal. Challenger, Gray & Christmas, reports that job cuts last month fell to the lowest level since the firm began tracking this data in 1993. “It is not unusual to see job cuts increase in January," says the firm's CEO, John Challenger, in a press release. "In fact, 2011 marks the fifth consecutive year and the tenth out of the last twelve in which January job cuts surpassed the December total." He goes on to note that "what made this January figure so unusual is that it was so low."
Does that give us courage to expect brighter days for job growth in the months ahead? Perhaps tomorrow's employment report for January will provide some fresh perspective on an answer. Stay tuned…
Posted by jp at February 3, 2011 9:32 AM