Bi-Weekly Economic Review: Who’s Hiring?

Economic Reports Scorecard

Two reports over the last two weeks epitomize the bifurcated nature of the US economy. The durable goods report last week was just plain awful from top to bottom. Orders down 4% month to month and 6.4% year over year. Ex-transportation -0.5% month to month and -3.6% year over year. Core capital goods orders up slightly month to month, 0.2%, but down 3.7% year over year and now down 17 of the last 18 months. Computers down 9.1%, communications -2.3%, primary metals -1.3%. Unfilled orders down 0.9%. The biggest positive in the report was a slight draw on inventories. Like I said, just plain awful.

By contrast, the employment report released on Friday reflected none of that weakness. Private payrolls were up 217,000, the participation rate ticked up 0.1 to 62.8%, average hourly earnings rose 0.3% and the workweek extended by 0.1 hours to 34.5. The unemployment rate was unchanged at 4.9%. Overall, about as good an employment report as we’ve seen in this recovery. This recovery has been subpar from the beginning but if you believe in secular stagnation – for the record I don’t –  and that this is the best we can do, well you’re probably pretty pleased with this report. And apparently the market is, as stocks rose, gold and bonds fell on the report.

We would certainly warn against reading too much into one report though and remind everyone that employment is a lagging indicator. The November 2000 employment report looked pretty good too – +226,000 jobs – and yet we were in recession within just a few months. +240,000 in January 2007 and recession arrived less than a year later. And within this report are some worrisome signs. As in the 2000 and 2007 versions cited, almost all the gains were in the services side of the economy; only 17,000 goods producing jobs were created and 14,000 of those were supposedly in construction on which we also get a negative report recently (down 0.6 on the month and now flat year over year). Retail and transportation and warehousing also added jobs while professional and business services rose the most at 70k. A good portion of that category was in temp services which could be taken as a positive or a negative. Companies do tend to hire temps before hiring permanent workers but they also hire temps when they lack the confidence to hire for the long term.