Deller's two cents:
Mostly positive economic news, the employment numbers are surprisingly strong and the unemployment rate dropped significantly. But, as my colleague Bruce Jones asks, what caused the big drop in unemployment? While the job growth is good, its not good enough to explain that drop in the unemployment rate. Professor Jones suggests we look at the labor force participation rate:
2011-08-01 64.3
2011-09-01 64.2
2011-10-01 64.1
2011-11-01 63.9
2011-12-01 63.8
2012-01-01 63.4
Notice the drop from December 2011 to Jan 2012: 63.8 to 63.4. Notice the downward trend here, people are leaving the labor force.
Why? Baby-boomers retiring or people throwing their hands up and giving up on looking for a job?
The U.S. economy added 243,000 jobs in January, the most since April 2010, thanks largely to an increase in hiring by the private sector. The U.S. jobless rate, which is based on a separate household survey, fell to 8.3%, its lowest level since February 2009. The job gains were widespread, coming from a variety of sectors including professional and business services (+70,000), manufacturing (+50,000), and leisure and hospitality (+44,000). Government employment remained an area of weakness; public payrolls shrank by 14,000 in January.
"The improvements in the latest employment figures and other economic indicators can help build economic momentum and reignite business confidence, which can lead to even more hiring," said Roger Aliaga-Díaz, Vanguard senior economist. "Of course, we remain cautious given the headwinds from the U.S. housing sector and the European debt crisis."
Consumers earn more but spend less
Personal income rose 0.5% in December-its biggest increase since March-as consumers benefited from increased wages, dividend income, and rental income. Yet consumer spending remained unchanged. An increase in personal taxes limited disposable income to a 0.4% gain. The savings rate increased to 4.0% in December, up from 3.5% in November.
Labor costs rise slightly
The Employment Cost Index, a broad measure of employers' labor costs including wages and benefits, ticked up 0.4% in the fourth quarter of 2011. The wages-and-salaries component of the index rose 0.4%, while the cost of benefits grew 0.6%. Year-over-year growth in total compensation held steady at about 2%.
Consumers less confident, but not pessimistic
The Conference Board's Consumer Confidence Index slid to 61.1 in January, much lower than analysts expected. The decline was largely driven by consumers' lackluster assessment of their present situation. Many found business conditions less favorable and jobs harder to find. Their expectations for the near term were more mixed.
"Regarding the short-term outlook, consumers are more upbeat about employment, but less optimistic about business conditions and their income prospects," said Lynn Franco, director of The Conference Board Consumer Research Center.
Construction spending picking up
Construction spending grew 1.5% in December, more than double the rate expected by analysts, thanks to large gains in private nonresidential construction (+3.3%). Increased spending on power and utility structures and manufacturing projects helped lift the category. Although the construction industry remains weak overall, there are signs that spending is picking up across the board. Spending on both private residential and public sector projects rose slightly in December. Construction spending for the month was 4.3% above its level in December 2010; however, for the full year, construction spending in 2011 was 2.0% below its 2010 level.
Business activity gauges stronger
The ISM Manufacturing Index, which measures U.S. manufacturing activity, climbed to 54.1 in January, its third consecutive increase. (An index measure above 50 indicates expansion.) There were gains in new factory orders and exports. Employment levels remained fairly steady, while growth in production slowed. And backlogged orders rose for the first time in eight months, suggesting the potential need to increase production and possibly employment to meet future demand.
The ISM nonmanufacturing index had even stronger results for January. The index rose to 56.8, its highest level since February 2011. There were gains in new orders, exports, and employment. Backlogged orders slowed their decline. Overall, analysts view the results of the ISM reports as positive and supportive of gains seen in other economic reports released this week.
Productivity gains slower than expected
Nonfarm productivity increased an annualized 0.7% in the fourth quarter of 2011, below expectations and the 1.9% gain in the previous quarter. Still, nonfarm output jumped 3.6% in the fourth quarter and hours worked rose 2.9%. Compensation per hour also rose 1.9%. Unit labor costs rose 1.2%. Analysts attribute the slowing in productivity growth to a rise in manufacturing hours worked, which is a good sign for a recovering economy.
An upswing in factory orders
New orders for manufactured goods increased in December for the second consecutive month, by $5.3 billion or 1.1%. Shipments of durable goods-items expected to last at least three years, such as automobiles-rose 2.2%. Nondurable goods orders and shipments, which are often affected by shifts in energy prices, declined in December. Orders for core capital goods, a measure of business investment plans, rose 3.1%.
The economic week ahead
Next week will be a light one for economic reports. Two reports are expected: consumer credit (Tuesday) 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 still have most of it left."
Seasick Steve
