Deller's two cents:  Well, it looks like the US economy is finally gaining traction, but the Wisconsin economy is going the wrong way.  This is somewhat surprising because the Wisconsin economy was not hit as hard during the most recent recession.  It might be the negative impact of the State budget working its way through the economy and as such a short-term setback.  Time will tell.

 

Economic Week in Review: U.S. economy on firmer ground?

December 02, 2011

Improvements in U.S. employment and manufacturing suggest the nation's economic recovery has regained traction. However, risks abound. The nation's housing and employment situation remain weak. A slower global economy and turmoil in the Eurozone pose a challenge to any recovery. For the week ended December 2, the S&P 500 Index rose 7.4% to 1,244 (for a year-to-date total return-including price change plus dividends-of about 0.9%). The yield on the 10-year U.S. Treasury note rose 8 basis points to 2.05% (for a year-to-date drop of 125 basis points).

Surprise decline in unemployment rate

The U.S. unemployment rate declined 0.4 percentage point to 8.6% in November, its lowest level since March 2009. Nonfarm employment rose by 120,000. Private sector employment increased by 140,000 jobs, while government jobs declined by 20,000. Sectors including retail, leisure and hospitality, professional and business services, and health care experienced gains. The weakest spot was construction. The unexpected decrease in the unemployment rate resulted from stronger household employment data as well as a contraction in the overall labor force. A shrinking labor force may be a result of fewer workers looking for work, possibly because they are discouraged about finding a job. Unemployed people who don't actively look for work are not considered part of the labor force.

"The drop in the unemployment rate was a big surprise," said Roger Aliaga-Díaz, senior economist at Vanguard. "As the length of time people spend in unemployment increases, and as extended unemployment benefits expire, more unemployed workers are giving up the job search. It's going to be important going forward to monitor alternative unemployment measures that include some of these discouraged workers to get a complete picture of the labor market."

Federal Reserve report shows modest growth

The U.S. economy grew at a "slow to moderate pace" across most regions between October and mid-November, according to the Federal Reserve's latest Beige Book survey. The biggest gains in the economy came from manufacturing and consumer spending. Bank lending improved slightly and home refinancing grew rapidly. However, residential and commercial real estate remained sluggish. Employment remained "subdued" although wages and salaries had stabilized.

Consumers a bit more optimistic

The Conference Board's index of consumer confidence jumped to 56.0 in November, up more than 15 points from October's exceptionally low reading of 40.9. The expectations component of the index, which reflects consumers' outlook on the economy for the next six months, climbed more than 17 points. The index's present situation component, a measure of consumer sentiment on current economic conditions, rose 11.2 points for the month.

"Confidence has bounced back to levels last seen during the summer," said Lynn Franco, director of the Conference Board Consumer Research Center. "Consumers' assessment of current conditions finally improved, after six months of steady declines. Consumers' apprehension regarding the short-term outlook for business conditions, jobs, and income prospects eased considerably. Consumers appear to be entering the holiday season in better spirits, though overall readings remain historically weak."

New-home sales up slightly

Sales of new single-family homes rose 1.3% in October to an annual rate of 307,000. While sales are up 8.9% from a year ago-the best year-over-year gain since May-they remain near the slowest pace on record. On a regional basis, home sales were a mixed bag. The Midwest and West experienced double-digit gains; the South was the only region to report a decline. The median new home price in October was $212,300, 4.0% more than a year ago. The housing market continues to struggle because of the continuing foreclosure crisis and high levels of unemployment, which have prevented many people from purchasing a home and taking advantage of some of the most attractive mortgage rates in recent history. There was about a six-month supply of new homes on the market in October.

Productivity rises, costs fall

U.S. worker productivity increased at an annual rate of 2.3% in the third quarter, below economists' expectations. The figure was revised from a gain of 3.1% in the third quarter's preliminary report. However, the third-quarter growth followed two straight quarters of declines. Unit labor costs fell 2.5% in the third quarter, revised from the 2.4% drop cited in the preliminary report. Economists had forecasted a 2.3% decrease. With productivity growth slowing, some analysts expect companies to add workers in 2012 to meet increased demand for goods and services.

Residential construction spending inched up

Overall construction spending increased 0.8% in October. Private sector spending increased 2.3% for the month, largely because more people are taking on home-improvement projects. Nonresidential spending was also up in October, climbing 1.3%. But public sector spending-which includes projects funded by state and local governments-declined 1.8% for the month. Compared with October 2010, overall government-funded construction spending is down 9.4%.

Manufacturing regains momentum

U.S. manufacturing, as measured by the ISM Manufacturing Index, rose to 52.7 in November, its highest level since June. An index level above 50 suggests expansion in the sector. The jump in manufacturing activity, which exceeded expectations, was driven largely by increases in new exports and production. The difference between new orders and inventories-a gauge of future production-jumped from 5.7 in October to 8.4 in November. While there were many signs of strength in manufacturing, employment levels continue to disappoint. Payrolls declined for the second consecutive month. Still, the U.S. manufacturing sector is growing, while some of the world's fastest growing nations, including China, are experiencing contraction in the sector.

The economic week ahead

Next week will be a light week for economic reports. Reports to watch for include factory orders and the ISM Nonmanufacturing Index (Monday), consumer credit (Wednesday), and international trade (Friday).

--
 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 still have most of it left."
Seasick Steve