DRIVING BLIND (Continued)
The disappointing jobs report released Friday leaves Fed officials without a clear-cut signal of an economy on the mend, creating a dilemma for the central bank as it contemplates pulling back on a bond-buying program.
Employers added a steady, if unspectacular, 169,000 jobs in August, and unemployment rate fell to 7.3% last month. That’s notable improvement from the 8.1% unemployment rate when Fed officials launched the latest stimulus program late last year, but job growth has been anemic in recent months, below the 200,000-a-month level some officials want to see. (…)
“Steady”? Payrolls growth has averaged 148,000 for the past three months, a notable decline from the 199,000 pace of the previous 5 months and well below the 184,000 average of the past twelve months.
Add the significant revisions (net downward revision for June and July of 74,000 jobs) and you get deep in the mud if your job is first to know where you are before finding the right direction.
Then, in the household survey, the total number of people employed declined by 115,000, but the size of the labour force fell by a much higher 312,000, accounting for the decline in the unemployment rate to 63.2%, which is the lowest rate since August 1978 and before the enormous influx of women in the workforce in the 1980s and 1990s.
Bespoke Investment adds:
While much, if not all, of the increase in the labor force participation rate in the 1970s was attributable to women entering the workforce, the shrinking of the labor force since the peak in early 2000 is due in majority to the exit of men from the work force. For example, since the labor force participation rate peaked, the participation rate among women has declined by just 2.8 percentage points. Men, on the other hand, have seen their participation rate decline by twice that at 5.6 percentage points.
Due to the fact that men are exiting the labor force at nearly twice the rate of women, the gap between the participation rate among men and women has been steadily shrinking. The participation rate among men currently stands at 69.5%, while the rate among women is 57.3%. With a spread of 12.2 percentage points, the gap between the sexes has never been narrower.
More important is that men employment (+ 947,000 or +1.3%) has seriously lagged women employment (+2,326,000 or +3.5%) since 2012. Given the (15-28% depending on industry) gender pay gap, this has probably contributed to corporate profit margins in the past 18 months.
ONLY PIECE OF GOOD NEWS:
The only piece of good news came from the household survey, which despite the net job losses showed a second consecutive increase in full time jobs.
But as today’s Hot Charts show, despite those gains in full-time positions the share of part-timers in total employment remains much too high. (…) That in turn is restraining the economy e.g. preventing an improvement in home ownership rates and capping wage growth and hours worked. The annualized growth rate in aggregate hours is tracking just +1% so far in Q3, a deceleration from Q2’s pace, suggesting a likely return to sub-2% GDP growth in Q3 after the spike in the last quarter. (NBF Economy & Strategy)
The WSJ keeps hammering:
Part of the problem is also the growing attraction of not working. These columns have reported on the explosion in both the food-stamp and federal disability rolls since the recession ended. A new Cato Institute study shows that the full plate of welfare benefits—food stamps, housing assistance, Medicaid and so on—now pays more than a $12 an hour job in half the states. This, too, plays a role in the expanding number of people who are leaving the workforce. Reforms in those programs would help, but the real cure is faster economic growth.
Why Is One-Sixth of U.S. on Food Stamps? Food-stamp use grew 2.3% in June from a year earlier, with nearly one-sixth of the U.S. population receiving benefits.
One of the largest social safety net programs in the United States, food stamps – formally known as the Supplemental Nutrition Assistance Program, or SNAP – expanded substantially during and after the recession, with enrollment rising about 70% from 2007 to 2011. At the same time, the government also temporarily increased benefits and allowed users in the hardest-hit areas to receive aid for longer-than-usual periods of time. The average monthly benefit was $133 last year.
Critics clamor against what they see as a disturbing rise in government dependency. But new economic research suggests the program’s expansion isn’t alarming and can, in fact, be explained by business cycles. (…)
The 2009 fiscal stimulus program’s temporary increase in food stamp benefits, which may have also boosted incentives to enroll, is set to expire Nov. 1. Congress is not expected to mitigate the scheduled cuts.
Companies remain reluctant to add jobs. They may not be able hold off for too much longer.
(…) One indication companies may need to step up hiring is that there hasn’t been much firing going on. The four-week moving average of initial jobless claims, at 328,500, has reached its lowest level since October 2007. Companies also had workers clocking more time last month, with private payroll hours rising 0.4%. To add that many hours of work without increasing each worker’s time on the job, private employers would have had to increase payrolls by 464,000 positions, rather than the 152,000 they delivered.
What the WSJ fails to mention is that last month’s increase in weekly hours was tiny and left average hours near the low end of their range of the last 3 years. There is thus no immediate need to boost payroll as the WSJ article suggests.
Here’s a more solid sign of hope from the August NFIB survey (via John Mauldin):
Job creation plans rose a very large 7 points to a net sixteen percent planning to increase total employment, the best reading since January, 2007 and historically a very strong reading. Not seasonally adjusted, 15 percent plan to increase employment at their firm (up 3 points), and 5 percent plan reductions (down 1 point). If this reading is not a fluke, it signals a substantial resumption of hiring in the coming months. Hopefully, the September survey will validate the August readings and reports of actual hiring will turn positive.
SO, TAPER OR NO TAPER?
How about a baby taper? One little step at a time…
One option that has gained support among some Fed officials in recent weeks: Reduce monthly bond purchases by a small amount, say by $10 billion, to $75 billion a month, and signal as loudly as possible the next step will depend on more evidence the job market is continuing to improve and inflation is moving back toward 2% from its current low levels.
Obama will copycat, one little tomahawk at a time…
Facing a divided Congress and a war-weary public, Obama has promised that any U.S. action will be “limited and proportionate.” Syrian President Bashar al-Assad and his allies, though, will also help decide how long and how big any American military mission in Syria will be.
Part-time employment in Canada rose by 41,800 in August, with full-time jobs rising by 17,400, Statistics Canada said. Service industry employment increased by 40,600 and goods-producing companies hired 18,600.
Canada has added 38,400 full-time jobs so far this year, the second-least in that period since 1995. (…)
Job gains have averaged 12,700 this year, compared with 25,900 in 2012. The world’s 11th largest economy needs to add more than 22,000 jobs a month for the rest of 2013 to avoid suffering the weakest annual gain since 2001, except for the recession years of 2008-2009.
(…) The central bank, led by Governor Agustín Carstens, was clear in its reasons for cutting the overnight rate target to 3.75%: the economic downturn in the second quarter was “faster and deeper” than expected, and the slack in the economy is likely to remain for a prolonged period.
The bank acknowledged that economic growth this year will be well below the 2%-3% estimate it gave in August, about a week before the National Statistics Institute released the bad news about second-quarter gross domestic product, which contracted 0.7% from the first quarter and was up just 1.5% from a year earlier.
Credit Suisse economist Alonso Cervera, who alone had predicted a quarter-point reduction in the overnight rate Friday, says it’s significant that the Bank of Mexico didn’t call this a one-off cut, as it had done with the half-point reduction in March. (…)
The central bank was sanguine about inflation, which it said is likely to follow a lower path than the 3.5% it recently predicted for coming months. The bank’s permanent CPI target is 3%.
Data indicators across the euro zone Friday reinforced remarks made Thursday by European Central Bank President Mario Draghi to the effect that while signs of recovery are indeed apparent, they remain weak and somewhat inconsistent.
Industrial output in Germany fell 1.7% on the month in July, the country’s economics ministry reported Friday. This was well below expectations of a 0.5% dip in a Dow Jones Newswires survey of analysts. The data followed an earlier release from the statistics agency that showed exports dropping on the month and the country’s trade surplus narrowing.
China’s economy shows new signs of resilience in August, with key trade data pointing to a sustained strengthening in global demand for goods from the country.
Exports continued to gather steam, rising 7.2% in August from a year earlier, according to data released Sunday by the General Administration of Customs. This was up from a 5.1% rise in July and a contraction of 3.1% in June. Imports rose 7.0% from a year earlier in August, down from 10.9% in July.
Shipments to the U.S. rose 6.1% on-year in August, up from 5.3% in July, which marked an improvement from shrinking sales earlier in the year.
Sales to countries in the Association of Southeast Asian Nations — a 10-nation grouping that includes Indonesia, Malaysia, Thailand and Singapore — rose 30.8%.
Credit Suisse analysts track the quarterly change in China premier’s three favoured economic measures in a forward-looking indicator they call the Li Keqiang Momentum Index (LKMI):
(…) all three of the LKMI’s indicators have started to gather steam in the third quarter, which reflects the positive news the economist and his team of analysts have been hearing anecdotally (…).
(…) None of the new supports to growth are robust. But they should at the very least keep things in China from getting much worse. (…)
Investors pulled a net $226 million out of U.S. equity mutual funds in the week ended Sept. 4, their first week of outflows since the week ended June 5, according to fund tracker Lipper. That was a reversal from the $1 billion of inflows the previous week. (…)
ETF investors have pulled $23 billion from U.S. stock funds over the past four weeks, after sending cash to U.S. stock ETFs for six weeks in a row. In the latest week, they pulled $4.8 billion from U.S. stock ETFs.
TRAVELLING for the rest of the month. Why not?