Deller's two cents: Good jobs numbers and Wisconsin has renewed its economic forecasts and things are looking up. This may improve the state's budget situation, but how the politics of that will play out is unclear. The proposed state budget cuts will put significant downward pressure on the economic recovery, but I doubt it will "trip" us back into a recession.
Economic Week in Review: A self-sustaining recovery?
March 04, 2011
March came in like a lamb, at least as far as U.S. economists were concerned. Although turmoil in the Middle East and northern Africa have forced Americans to pay more for gas at the pump, at least temporarily, this week's data seemed to reflect an economy on the mend. For the week ended March 4, the S&P 500 Index rose 0.1% to 1,321 (for a year-to-date total return-including price change plus dividends-of about 5.5%). The yield of the 10-year U.S. Treasury note rose 7 basis points to 3.49% (for a year-to-date increase of 19 basis points).
The Fed reports a modest recovery
The recovery continued at a slow pace in January and early February, according to the Federal Reserve's latest Beige Book survey of nationwide conditions. With the exception of the Chicago region, activity picked up modestly in each of the Fed's 12 districts. The labor market, auto sales, and the manufacturing sector showed small upticks, but real estate, not surprisingly, remained soft in most areas. Analysts detected subtle warning signs of inflation in the Fed's data-among them, rising prices for commodities and raw materials for manufacturers. Some observers also cautioned that the next edition of the Beige Book is likely to reflect the impact of the wave of political unrest in the oil-producing world.
More Americans head back to work
Confounding expectations of another increase, the unemployment rate dropped 0.1% in February to 8.9%, its lowest level since April 2009. Private-sector payrolls grew by 222,000 (public-sector payrolls fell slightly), and figures for December and January were revised upward as well, for a three-month average of 136,000 new jobs. Gains were posted in most job sectors, including professional services and the construction industry, though retailers shed about 8,000 jobs. Although the data were encouraging, analysts noted that the jobless rate remains dispiritingly high and anything resembling "full employment" is still a few years away, at best.
"The latest data bear out our expectations that the economy will continue to gain traction toward a self-sustaining recovery," said Vanguard's chief economist, Joe Davis, Ph.D. "The recent spike in crude oil prices is an area of concern, however, as it could negatively impact consumer spending and force businesses to cut back on investment and hiring. Oil benchmarks will bear careful scrutiny over the next several months, but we remain cautiously optimistic about the outlook for 2011 and 2012."
Factories pick up the pace
The manufacturing sector remained a bright spot in February, with the Institute for Supply Management (ISM) reporting an increase in factory activity for the nineteenth consecutive month. The ISM's manufacturing index rose to 61.4 from 60.8, beating expectations and reflecting the overall improvement in economic conditions nationwide. New and backlogged orders expanded and inventories shrank, while manufacturers added jobs to meet growing demand: The ISM factory employment index rose 4.5% to 64.5, its highest level in a generation.
In another hopeful sign for the industrial sector, orders for manufactured goods rose a better-than-expected 3.1% in January, with the transportation sector leading the way.
An early spring for the service sector
The ISM also had good news for the service sector. Its nonmanufacturing index inched up a few fractions of a point in February to 59.7, the highest level in nearly six years. Buried in the data were signs that many businesses are poised to expand in coming months, portending further strengthening in the job market.
Construction spending down slightly
Spending on construction projects slipped slightly in January, dropping 0.7% to $791.8 billion. Private residential construction was up considerably, however, posting a 5.3% gain from December, for a total of $245.6 billion. Among the sectors reporting declines were power and utility (-11.8%), health care facilities (-9.7%), and factories (-2.7%). Overall, construction spending was down 5.9% from January 2010. Analysts found little reason to expect a major rebound in the near future, with federal stimulus funds drying up and few signs of a turnaround in the beleaguered housing market.
Higher earnings, but no spending spree
Americans earned more in January, but they saved more, too. Thanks in large part to a reduction in Social Security taxes, personal income jumped 1.0%, but consumers seemed inclined to hold on to the extra money, with the savings rate rising almost half a percentage point, to 5.8%, and consumer spending virtually flat. Inflation remained largely under control in January, as consumer prices rose just 0.1% when ever-volatile food and energy costs are factored out.
The economic week ahead
Economists will spend the coming week sorting through fresh data on consumer credit (due Monday), international trade (Thursday), and retail sales and business inventories (both on 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
