US Labor Market Improves, But Misery is not Over Yet

There is good news for sustainable economic growth in the US post 2008 financial crisis. Employment rates have passed through the inflexion point and recent reports on production and spending point to an accelerated momentum in the economy.

Its weakness remains “the state and local government. It continues to lay off people vowing to budget pressure” Sung Won Sohn, Smith School of Business and Economics.

And what do we have to account for the improvements?

There is good news for sustainable economic growth in the US post 2008 financial crisis. Employment rates have passed through the inflexion point and recent reports on production and spending point to an accelerated momentum in the economy.

Its weakness remains “the state and local government. It continues to lay off people vowing to budget pressure” Sung Won Sohn, Smith School of Business and Economics.

And what do we have to account for the improvements?

Ian Shepherdson, High Frequency Economics quotes “[The] gains were broad based, with manufacturing up a hefty 70,000 and most services strong except retail, -8,000. Wage dip shows no inflation threat at all. Expect gradual sustained acceleration in payrolls next few months.”

In the manufacturing sector, 86,000 jobs have been created in the last two months, displaying the strongest rate of job growth since 1998 according to Dan Greenhaus, Miller Tabak who goes on to say “It was difficult to imagine the sector growing and producing as much as it has been without a commensurate gain in jobs and that appears to be happening. Further, the weather related decline in construction jobs was largely reversed in the month and while nobody believes a sustained period of robust construction hiring lay ahead, it is a welcome bit of good news in a hard hit sector.”

However, January still showed weaknesses in the temporary jobs category which slipped by 5,000 in this month, and only increased by 16,000 last month – “about half of the late 2010 pace. We know anecdotally that placement agencies are ripping right now, so this is the one obvious place where the employment tallies have clear room to accelerate. February was also a surprisingly weak month for retailers (down 8,000), though that comes on the heels of a 31,000 pop in January. As I breeze through the categories, I could see private payrolls printing over 200,000 in March without the benefit, as was the case in February, of a weather bounce”,Stephen Stanley, Pierpoint Securities.

But companies are indeed hiring again. Evidence for this pointed out by Stuart Hoffman, PNC “. I think the BLS is still underestimating job creation in the winter months that will eventually be rectified by further upward revisions to the past three months or, more likely, by a “blow-out” payroll jobs gain of 300,000+ in March and/or April to catch-up with the winter months’ jobs undercount.”

As Joshua Shapiro, MFR Inc. notes “nonfarm payroll data are improving on a trend basis, albeit slower than anyone would like to see, it is also important to realize that other labor market data are strengthening, and therefore the labor market recovery does appear to be on solid ground. However, Eric Green, TD Securities skeptical about the report’s results: “Decent report, but not the type of job growth Bernanke is referring to as evidence that the recovery is truly self sustaining… There are as many negatives as there are positives. Earnings weaker than expected, private job growth moving higher but still not showing any decisive breakout, and unemployment did drift higher [sic] but again labor force growth is just downright anemic. If labor force does bounce back as we expect, then 150,000 jobs a month will need to nothing more than a painfully slow absorption of excess slack.”

Michael Gapen of Barclays Capital also adds “This is a report that suggests that labor market conditions continue to improve at a moderate pace and signals that the weakness in the January report was mainly a weather-related effect as opposed to a loss of momentum.”

Commenting on state and government layoffs, Heather Boushey, Center for American Progress reports “Slow job growth continues to keep people out of the labor force as the share of the population working or seeking work is 64.2 percent, the lowest since 1984. State and local government layoffs are weighing down job growth as these governments have shed 241,000 jobs over the past year even as unemployment remains high at 8.9%.”

According to RDQ Economics, the labour market is indeed improving, and so is the increased pace of job creation. It reported 152,000 three-month average in private nonfarm payrolls to be the strongest since 2007. While the average gain in the same period in more volatile household employment to be at 221,000. “The downward trend in claims suggests this improvement in hiring will continue into the spring and we are sticking with our forecast of 200,000 average private payrolls creation through 2011.”

David Greenlaw of Morgan Stanley comments on the household survey: “[The survey] show(s) stronger job gains than the establishment survey. On a payroll-adjusted basis, the household survey showed employment up a whopping 342,000 in February (and an average of 331,000 over the past three months). So, of the nearly 1 percentage point decline in the unemployment rate seen over the past three months — about 0.7 percentage points is due to rising employment and the rest is due to a contraction in the labor force.”

Unemployment is continuing to trend lower according to Harm Bandholz, Unicredit “It fell a whopping 0.9 percentage point over the last three months, the largest 3-month decline since late 1983. While the improvement in the previous two months was triggered by a shrinking labor force (764,000 frustrated unemployed stopped looking for work), the decline in February reflects higher employment.”

Guy LeBas, Janney Montgomery Scott comments on the unemployment rate ticking down 8.9 percent: “…the third consecutive month of declines. Once again, the household-reported employment growth well exceeded the firm-reported numbers. This sort of divergence typically lasts for only one period before reversing, not for three months, as it now has. One possible explanation is structural rather than technical: the number of individuals holding two jobs is declining yet the number of individuals holding single jobs is rising, causing limited net change in payrolls numbers (which count jobs) but increases in household numbers (which count the number of people with jobs). That optimistic explanation would call for consumer spending growing at a faster pace than the current rate of payroll growth implies.”

However, Sophia Koropeckyj, Moody’s Economy.com is skeptical “The labor market is starting to dig out of its deep hole but job creation is not yet strong enough to draw many previously discouraged workers back.”

And David Semmens, Standard Chartered Bank forecasts are gloomy despite the positive results “The underlying details point to further misery for the U.S. consumer. Income growth slowed and hours worked failed to pick up, signalling that although labour demand has gathered pace we are still very far from having a tight labour market.”

Quotes were taken from The Wall Street Journal.