Retail Sales Starting to Trend Up

During this time of year, retail sales become a key economic indicator. Early indications are that the 2011 holiday shopping season got off to a record start with consumers spending an estimated $45 billion over the weekend after Thanksgiving. Retail sales dipped during the 2007-09 recession and have been slow to recover, so this early indicator is a hopeful one. A more confident consumer will help spark what has been a slow economic recovery.

The chart below shows retail sales by quarter and a smoothed four quarter moving average. (Taxable retail sales differ from retail sales in that some items like some medical equipment and farm machinery are exempt from sales taxes so their sales are not included.) Regional retail sales peaked in mid-2008 before declining with the recession throughout 2009. The latest data available, through the 2^nd quarter of 2011, shows regional retail sales starting to trend up again, but still not at pre-recession levels.

Within the metro, 36 percent of these taxable sales ($8.98 billion) occurred in Johnson County. Jackson County was a close second with 32 percent ($8.07 billion).

On a per-capita basis, retail sales in Johnson County stands out again. Johnson County has retail sales in excess of $16,000 per person. Platte County is second with more than $15,000. All other counties are below the metro average of $12,414 per person. Retail sales taxes are a key contributor to revenues for many local governments. It would appear that this source of revenue might be heading back to the days of steady growth.

Employment Data Whiplash

In an August press release, the Bureau of Labor Statistics said that Kansas City was the second-worst metro in the country in terms of employment change. Between August 2010 and August 2011, the region lost more than 11,000 jobs. Only Atlanta had a worse year-over-year performance.

This had us scratching our heads because it is unusual for Kansas City to be at the extreme end of most economic issues. Generally we tend towards the median.

Fasten your seatbelts. After posting that loss of 11,000 jobs in August, the September data shows a robust rebound — jobs in the region are up nearly 3,000 over September 2010.

Now, an employment increase of 3,000 jobs is nothing to write home about. In fact, it is a very bad annual figure — but at least it is on the positive side of the ledger. The negative August numbers got a lot of press. September’s good news needs some coverage, too.

The chart below shows that while U.S. employment (as measured by a year-over-year percent change) turned upwards in late 2009, and stayed positive through the middle of 2010, Kansas City’s has zigged and zagged. We’ve struggled to show consistent year-over- year growth since before the recession.

Our September spike is evident on the extreme right side of the chart. We will see in coming months if this spike is an anomaly or whether we can put the neck braces away and begin to enjoy the smoother ride of a long-term employment expansion.

Third-quarter GDP figures offer reason for optimism

An initial look at the national economy’s third quarter should lessen the fears of a double-dip recession. Though the growth rate of 2.5 percent isn’t headline material in and of itself, it is solid enough to think the economy is slowly crawling back to sustainable long-term growth.

A detailed look at the numbers shows strong growth in domestic investment, specifically in equipment and software. This is an encouraging sign, as businesses have been reluctant to invest while the recovery is still shaky. Personal consumption grew to its highest point this year (a 2.4 percent growth rate) while government consumption was flat.

To be sure, there are still concerns out there. Chief among those is the European debt crisis. Just one year ago, we thought the economy was well on its way to recovery, but the earthquake in Japan and high fuel prices put on the brakes. Now, with consumption and private investment picking up some steam, the basic engines of economic recovery appear to be getting back on track.

The Roller Coaster Ride Continues.

A common joke in economic circles (yes, economists do occasionally have a sense of humor) is that economic forecasters are around just to make weather forecasters look good. Well, in our defense, here is a sample of what we have to work with.
Last Thursday we got this headline “Stocks advance on strong jobs report.” Friday’s headlines read “Stocks drop after weak jobs report.”
Two days, two different reports, two different directions for the stock market. So how can we have such divergent job reports released within 24 hours?
Let’s start with the “strong” jobs report. This is actually two separate reports. The first was the federal government’s weekly report on first-time unemployment benefits. This report showed that for the week ending July 2, fewer filings for unemployment insurance occurred than expected. This definitely qualifies as good news.
The second good news report that drove the market up on Thursday was a report from ADP, a private company that provides payroll services for businesses. This report found that employment in the private sector added 157,000 jobs in June, far exceeding expectations.
This set the stage for Friday’s unveiling of the official June jobs report. With the positive news released on Thursday, hope arose that the June employment numbers would show a solid rebound from May’s disappointing figures.
Instead the June figures were even more disappointing. The national economy added a paltry 18,000 jobs in June. Economists had expected growth of about 125,000. According to the June report, private employers only added 57,000 new jobs, while the public sector lost 39,000. This is a far cry from the 157,000 new private sector jobs ADP indicated we created in June.
The discrepancy between these reports is really not the story here, although it is a good example of how difficult it is to accurately measure our economy. The true story is, and continues to be, where are all the jobs?
This year had been fairly solid in job creation through April, but the back-to-back down months since then is a real concern. Jobs will lag the recovery, but by this point, we would expect to see some real employment growth.
This may be just a temporary employment lull caused by the earthquake in Japan and the political wrangling over the debt ceiling. On the other hand, it may instead be a new normal brought on by a combination of increased productivity and a private sector that is more concerned with paying down debt than spending. [Little known fact – the private sector, households and businesses, holds 63 percent of the nation’s nonfinancial sector debt, twice as much as government’s 31 percent.] Which of these two scenarios will ring most true remains to be seen.

Higher productivity equals fewer workers working harder

The nation is now two years removed from the end of the recession. The economy, as measured by GDP is now at pre-recession levels. We have become accustomed to seeing the economy expanding well before employment picks up after a recession. Employment has always been a lagging variable, but should it lag by two years?
The chart below perhaps best illustrates our current economic situation. The economy has recovered. We are producing the same amount of economic output as we were back in late 2007. But now we are doing this with 7 million fewer workers.

Source: Bureau of Labor Statistics, Bureau of Economic Analysis

So far in 2011, employment has begun to pick up slightly, so perhaps employers have maxed out the productivity they can get from their existing workforce. But questions remain: Is the lack of employment so far simply an unfortunate reflection of the severity of the recession, with employers still stinging so much they are reluctant to take on the risk of hiring? Or, are we at a “new normal” where new technologies and outsourcing mean we shouldn’t expect to see full employment (below 5 percent) anymore? This writer still leans to the former, but if employment levels don’t start climbing soon that answer may soon change.

Great National Job Numbers

April job numbers for the nation were released today and the results exceeded expectations as 244,000 jobs were added last month. So far this year the nation has added 768,000 jobs. Perhaps even more encouraging is the broad nature of the growth. Every sector except government saw employment increases. Retail trade led the way with 57,100 new jobs, followed by professional and business services with 51,000 jobs.
Despite the added jobs, the unemployment rate still increased in April, but that’s not all bad news. The unemployment rate rose because the size of the labor force increased faster than employment. This reflects the renewed optimism of people who had given up looking for work, but now — with positive economic news on the rise — are reentering the job market and giving it another try.
The economy is still on shaky ground as spikes in energy costs threaten the recovery, but it is certainly encouraging to see private sector businesses across the board actually bringing on more staff in significant numbers.