Strategic Briefing | 3.26.12 | What’s Next For The Labor Market?

Mild Winter Weather and Payroll Employment
Macroadvisers | Mar 22
To summarize, we estimate that unseasonably mild weather this winter has had a measurable effect on employment, with the level of employment in February 72 thousand above the level consistent with no deviation in weather from seasonal norms. Our model suggests that in the event weather in March returns to seasonal norms, the change in payroll employment will be reduced by 58 thousand. Furthermore, a continuation of seasonally normal weather into April would result in a further drag on the change in employment then of about 14 thousand. The result for March provides an estimate of the significant adjustment one should make to the headline employment number in March to more accurately judge the underlying strength of employment.

Morgan Stanley Explains Why The Next Jobs Report Is Very Likely To Turn South
The Business Insider | Mar 25
In his Sunday evening note to investors, Morgan Stanley’s Joachim Fels discusses the meh recovery, and touches on why the jobs report won’t be as hot as previous ones:

Our US team continues to see GDP tracking at a meagre 1.7% in the current quarter, and attributes most of the decent labour market data in recent months to unusually mild winter weather. In fact, the four-week average of initial jobless claims has now been very little changed for a month and the big improving trend from mid-September to mid-February has thus now stalled. Our initial forecast for March non-farm payrolls, due on April 6, is that job growth will moderate to +175k, down from the average +245k gains in the three prior months, with a bigger weather-related payback likely ahead in the spring. Moreover, softer-than-expected housing market data provided a useful reminder that, contrary to a widespread view, the sector that was the epicentre of the Great Recession may still not have bottomed yet. If our cautious view on growth is right, the Fed has more work to do and will likely implement additional easing measures in coming months, with an extension of Operation Twist, including sterilised MBS purchases. All eyes are on Ben Bernanke’s speech this Monday at the NABE conference, where he has an opportunity to push back on the market’s substantial shifting forward of expectations of the first Fed rate hike to late 2013 or 2014.

Why we debate
Macroblog (Atlanta Fed) | Mar 23
If you try, it isn’t too hard to see in this chart a picture of a labor market that is very close to “normalized,” excepting a few sectors that are experiencing longer-term structural issues. First, most sectors—that is, most of the bubbles in the chart—lie above the horizontal zero axis, meaning that they are now in positive growth territory for this recovery. Second, most sector bubbles are aligning along the 45-degree line, meaning jobs in these areas are expanding (or in the case of the information sector, contracting) at about the same pace as they were before the “Great Recession.” Third, the exceptions are exactly what we would expect—employment in the construction, financial activities, and government sectors continues to fall, and the manufacturing sector (a job-shedder for quite some time) is growing slightly.

Consumer Credit Growing at Highest Rate in Past Decade: Unhealthy and Unsustainable?
Dan Alpert’s Two Cents (EconoMonitor) | Mar 22
While aggregate payrolls are up 4.6% YoY since February 2011, as 2 million net jobs were created over the past year, this has come at the expense of declining real wages and pretty flat (up 1.8% YoY) nominal wages. So the income/expense hole for many workers has become wider, and even the newly employed and re-employed are coming on in such low wage categories that when you subtract foregone transfer payments (unemployment and other benefits) their net additional income (and the contribution thereof to consumption/GDP) hasn’t risen all that much…. Are we once again entering a zone similar to the period immediately prior to the Great Recession in which consumer borrowing also grew rapidly, and more and more of the new borrowing was applied to debt service instead of new consumption? Watching retail sales trends over coming months should be instructive in this regard.
Bursting The Permabullish Bubble: 11 Out Of 13 Economic Indicators Have Missed
Zero Hedge (quoting David Rosenberg/Gluskin Sheff) | Mar 22
As for the other “beat” – jobs: why it is simply a case of applying the wrong seasonal adjustment factor to the months of one of the warmest winters on record.

The current edition of Maclean’s runs with this on its front cover: The Year That Winter Died. This is the warmest winter in 65 years and with the least amount of snowfall as well. In fact, going back to 1960, I found a dozen times when it felt a bit like March in February. This past January was warmer than each of the prior two Februaries and four of the past five; January felt like February; February felt like March. And somehow nobody outside of us, the economists at my old shop at Merrill and NY Fed President Dudley have figured this out — how the data have been completely distorted by this weather pattern.

We estimate that if we had applied the February seasonal factor to this past January’s raw payroll data, and if we had applied the March seasonal factor to the February data, both months would have shown a decline! Instead, the world buys into to the reported data that suggests that payrolls surged 511k in the first two months of 2012 (even better, the Household survey shows +1.28 million … the best in 12 years!). Sure … and the Leafs are making the playoffs.

Disposable Income Growth Is At Recessionary Level
Investor’s Business Daily | Mar 23
No matter how much goes right for the economy — solid job gains, a booming stock market, a mild winter — growth continues to disappoint. The puzzle can be explained to a large extent by one simple data point: real disposable income. Year-over-year growth in real disposable income — the earnings Americans have left after taxes and inflation — is stuck below 1%, a level typically associated with recessions. It was just 0.6% in January. Why has disposable income lagged so badly while job gains in general and private-sector wages in particular are growing at a solid, if not spectacular, rate? The answer lies in large part in the unwinding of extraordinary government supports. It may seem hard to imagine that fiscal policy is anything but expansionary when deficits remain north of $1 trillion, but the reality is that some of the income props set up a few years ago are going away. The upshot: As the private economy finally starts to pick itself up, growth in the larger economy will be muted somewhat. And the drag could get worse, given the tax hikes and spending cuts scheduled to hit in 2013.

O’Brien: After decades leading economic growth, science and engineering jobs stall
Mercury News | Mar 24
We take it as an article of faith that compared with other industries, high-tech companies are job-creating machines minting high-paying science and engineering gigs that promise bright futures. Unfortunately, it may not be true. In a recent study by the nonprofit Population Reference Bureau, researchers found that science and engineering jobs represent about the same percentage of the U.S. economy as they did a decade ago. Even more alarming: For several previous decades, science and engineering employment was growing significantly faster than the rest of the economy. That means that between 2000 and 2010, the rate of growth in science and engineering jobs actually slowed. “Science and engineering employment was rapidly growing for five or six decades,” said Mark Mather, a demographer and co-author of the study. “This data clearly is showing that science and engineering growth has stalled over the past decade.” Nowhere are the implications of such a trend more important than Silicon Valley. Economists point to the health of science and engineering employment as a strong indicator of how innovative the U.S. economy is. Such creativity and invention are key to spawning new products and new industries that replace old, declining sectors of the economy.