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.

Kansas City, the Brain Magnet

Lists that rank cities on various criteria seem to be a trendy way for the media to attract attention. You can find lists for the most livable cities, the safest cities or greenest cities. There are lists telling you the best cities for single people or best cities for bicycle riders. There are so many, in fact, it is sometimes easy to overlook the truly interesting ones — interesting to us economists, that is. Forbes recently produced such a list and Kansas City ranks pretty well on it. On the list of top “brain magnet” cities, the Kansas City metro ranks fifth. The rankings were based on the increase in the number of residents who are at least 25 years old and college educated, compared to the population as a whole, between 2007 and 2009. The Kansas City area added more than 38,000 adults with at least a bachelor’s degree during that time.
Prevailing wisdom says that recent college graduates flock to the trendy coastal cities after graduation, but the data shows this is not really the case. The article says graduates are increasingly looking at affordability and employment growth when deciding where to start their careers. This would help explain why the list is dominated by lower cost metros away from the coasts.
And while we’re talking about lists, Kansas City was also on another recent Forbes top ten list that’s not as impressive. We rank seventh on the list of most miserable sports cities. Baseball season starts later this month. Come on, Royals, let’s try to get off that list!

New Metro Employment Figures are Puzzling

At KCEconomy.com, we strive to find interesting facts and figures regarding our local economy and do our best to explain what these figures mean. It is only fair that we include facts and figures that we… well, simply cannot explain. Such is the case with the recent employment figures for metro areas.
According to the Bureau of Labor Statistics the Kansas City area saw nonfarm employment decline 1.9 percent between December 2009 and December 2010. Out of the large metro areas with populations greater than 750,000, only Sacramento, Calif., had a more severe decline (2.2 percent). For the Kansas City area this means a loss of nearly 16,000 jobs.
The BLS data is the industry standard. It is the source for local area unemployment rate data, but these Kansas City numbers on employment change just don’t seem right to us. In the 2011 economic forecast MARC prepares for the Greater Kansas City Chamber of Commerce, released back in October, we predicted modest employment growth of about 8,000 for the region in 2010. This prediction was made using a national employment forecast with our model of the regional economy to predict how the local economy will perform. In the past, this approach has proved to be fairly accurate. This is the first time our estimate of the region’s employment direction is opposite that of BLS. Additionally, it has been generally accepted that our local economy weathered the recession better than other parts of the country. It is certainly surprising that Kansas City is so low relative to other large metros in terms of employment growth.
This BLS data will be revised this spring and we will look over the updated numbers with great interest. Either the current figures have somehow gotten out of alignment in 2010, or we may have to re-think how the local economy relates to the nation’s.
In the meantime, we will examine local employment data in detail so we can perhaps shed some light on this puzzling difference.

GDP up 3.2 Percent in Fourth Quarter 2010

The Bureau of Economic Analysis released its first estimate of how rapidly Gross Domestic Product grew in the fourth quarter of 2010 earlier today. The annualized rate of 3.2 percent marks the 6th straight quarter of growth. This ends a good year for the national economy, especially considering that the 2007-09 recession is fresh in our minds. If you recall, that many economists were worried about a double-dip recession in 2010. That talk has pretty well dissipated.
Also, as we discussed on Wednesday’s blog, personal consumption grew at 4.4 percent rate. This was actually higher than the 4 percent growth rate that was predicted.
What this means is the economy is on solid ground and should soon be providing those much needed jobs throughout 2011.

Welcome Back Shoppers!

Although the Gross Domestic Product figures for the fourth quarter will not be released until Friday, economists are already predicting a solid bump based on personal consumption. According to 27 leading economists, consumer spending in the fourth quarter of 2010 jumped by 4 percent. This would make for six consecutive positive quarters and would mark the highest increase since 2006.
Economists cite a strong holiday shopping season and solid new car sales as reasons for the optimism. Additionally, the Consumer Confidence Index jumped 7.3 points in January (from 53.3 to 60.6, where 1985=100).
Taken together, all this information indicates that the consumer is finally spending again, which will help reverse the downward cycle we have experienced in recent years. As consumers demand more goods and services, employers will have to hire more workers to meet this demand. More hiring leads to more consumption, and the cycle continues.

The depths we experienced in the recession will likely keep the economy from feeling particularly strong for a while. A lot of hiring will have to occur before we can even begin to reach pre-recession levels, but if Friday’s GDP release does in fact include a good consumption figure we can feel confident that the economy is on the way back.