Deller's two cents: I got nothin'...everything is looking up. Only dark clouds are Egypt and is the civil unrest spills into oil producing countries or disrupts oil supplies. Expect gas prices to spike.
Economic Week in Review: Jobs front and center
February 04, 2011
The jobs picture was mixed this week, while the Fed chairman punctuated employment's prominence in any economic recovery. January payrolls increased far less than forecast, but unemployment fell to its lowest level in nearly 2 years. Other indicators were positive, with increases in consumer spending, manufacturing and factory orders, the service sector, and productivity. For the week ended February 4, the S&P 500 Index rose 2.7% to 1,310.87 (for a year-to-date total return-including price change plus dividends-of about 4.4%). The yield of the 10-year U.S. Treasury note increased 32 basis points to 3.68% (for a year-to-date increase of 38 basis points).
Fewer jobs created, but lower unemployment
Nonfarm payrolls rose by 36,000 in January, far below expectations. Yet the unemployment rate decreased to 9.0%, its lowest level since April 2009. Although the two results appear to conflict, many analysts contend that the drop in unemployment was likely because severe winter weather kept people from seeking jobs (thus removing them from the workforce temporarily). Among those who are employed, about 900,000 people reported they weren't at work at some point in January, more than double the average for that month. The U.S. unemployment rate has been 9% or higher since May 2009.
Federal Reserve Chairman Ben Bernanke noted that it may take years for employment to return to normal levels. "Until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established," he said.
Consumers continue to increase spending
Consumer spending increased for the sixth consecutive month, rising by 0.7% in December, which was higher than expected. Personal income rose 0.4% in December as wage growth kept in line with the average for the second half of the year: 0.3%. As spending moved higher, the savings rate dipped to 5.3% in December from 5.5% in November. Real spending-which disregards the effects of price changes-grew 0.4%, led by durable goods. Core prices-excluding food and energy-were essentially unchanged for the fifth time in the last 6 months, indicating that inflation remains in check.
Manufacturing jumps to 6-year high
The Institute for Supply Management (ISM) Manufacturing Index climbed to 60.8 in January from 58.5 in December. (A reading above 50 indicates that the manufacturing economy is generally expanding.) The larger-than-anticipated gain put the index at its highest level since 2004. Manufacturing employment also rose, and January was the second straight month new orders rose more than 5 points.
Service sector shows some strength
The ISM nonmanufacturing (service sector) survey jumped 2.3 points to 59.4 in January, its highest point since 2005. The largest contributor to the new high was new orders, which rose 3.5 points to 64.9. The employment index also climbed to a new recovery high. Meanwhile, new export orders fell by 2.5 points while imports rose by the same amount. Nonmanufacturing is catching up to manufacturing, signifying that the recovery is becoming more balanced.
Factory orders rose unexpectedly
The Commerce Department reported that new orders for manufactured goods rose 0.2% in December; a decline of 0.5% had been expected. In addition, November's 0.7% gain was revised upward to 1.3%. Excluding transportation, orders were up 1.7%, as declines in orders for civilian aircraft pulled the headline figure lower over the month.
Durable goods orders fell 2.3%, but new orders and shipments of nondurables were each up 2.3%. Rising prices for petroleum and related products supported the increase in nondurable goods shipments.
Productivity gets another boost
Nonfarm business productivity rose at an annual rate of 2.6% in the fourth quarter, above consensus. In fact, the average productivity for all of 2010 was 3.6% higher than during 2009-the largest year-to-year increase since 2002.
For the fourth quarter, output increased 4.5% and hours inched up 1.8% (both annualized), although unit labor costs fell 0.6%. In 2010, unit labor costs were down by 1.5% from 2009.
Construction still in the doldrums
Construction spending hit another sour note in December, falling 2.5% from its November level to end 6.4% below its year-ago level. Residential and public construction accounted for most of the decrease. Although construction spending on new single-family homes was up slightly for the month, multifamily construction and residential improvement declined significantly. On a somewhat positive note, the decline in private nonresidential construction has slowed.
The economic week ahead
Next week's reports will include consumer credit (Monday) and international trade (Friday).
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Steven C. Deller
Professor and Community Development Economist
Department of Agricultural and Applied Economics
515 Taylor Hall --- 427 Lorch Street
University of Wisconsin-Madison/Extension
Madison, WI 53706
608-263-6251
"I started out with nothing and I have most of it left."
Seasick Steve
