Economic Notes: Something To Be Considered
1/13/2011
By Patrick O'Keefe, Director of Economic Research, J.H. Cohn
The final round of 2010 economic data confirms it as a year of unfulfilled expectations. Although the recent data is mixed, it supports the view that conditions will continue to improve.
It also hints at something that should be considered: in 2011 the rate of growth will accelerate, but not as much as is anticipated in recent forecast revisions that followed the Federal government’s temporary accord on taxes and spending.
Manufacturing Continues to Expand
New orders for U.S. manufactured goods rose to the highest level in more than two years. In the 20 months since bottoming in March 2009, total orders have increased by one-fifth (20.1%).
Cumulatively, new orders in the first 11 months of 2010 were 12.3% above the same period in 2009, in large part because of increased international demand.
International Trade Adds to Demand
By way of background: When manufacturing’s contraction ended in March 2009, the total value of goods shipped was $373.0 billion and the value of goods exported was $84.8 billion (equivalent to 22.7% of total shipments).
In November 2010, manufacturing shipments totaled $424.5 billion and exported goods totaled $113.5 billion, up 13.7% and 33.8% respectively from March 2009.
Exports’ outsized gains since the 2009 nadir were equivalent to 55.7% of the increase in total manufacturing shipments.
According to the monthly surveys of the Institute for Supply ManagementTM, the general trends—including increased exports—are expected to continue through the first half of 2011.
It is to be noted, however, that even with the increase in exported goods, the U.S. runs a persistent trade deficit because it imports more goods (including oil) than it exports.
Through the first 11 months of 2010, the goods-related deficit ran to $594.3 billion. On the other hand, the nation has long maintained a trade surplus in services, totaling $135.6 billion in the first 11 months of 2010 (12.9% more than in the same period of 2009).
(While the U.S. economy reaps substantial benefits from robust international trade, a persistently large deficit has significant long-term implications for domestic growth.)
Jobs Growth Remains Tepid
The jobs market limped out of 2010 and its continued weakness is likely to remain a drag on the economy in 2011.
The unemployment rate fell to the lowest level since mid-2009. The decline in jobseekers was partially attributable to jobs gains but also reflected the record number of discouraged jobseekers who have abandoned their job search.
Employment rose nationally in December, capping a year of uneven and mediocre growth in the private sector and contraction in the public sector. Put succinctly: private service providers added jobs as goods producers (construction and manufacturers) and local governments shed them.
Among the private service providers, where the gains were made, two-thirds of the increase was concentrated in three industries (temporary help, healthcare, leisure/hospitality) which comprise less than one-third of the sector’s jobs.
The skew is most evident in temporary help, which employs only two percent of all private workers. But that industry contributed almost one-quarter of the net increase in total private employment for the year.
In addition to the out-sized increase in temporary jobs, underemployment (i.e., involuntary part-time work) remains elevated.
Despite 2010’s gains, there were 7.2 million fewer jobs than when the recession began. (The gap is actually larger; the Bureau of Labor Statistics has announced it will reduce 2010’s job count by about 360,000.) And within that smaller pool of jobs, there has been a net increase of more than 5 million in the number of underemployed and temporary workers.
Earnings Lag Recovery
The impacts of the nation’s jobs deficit—unlike its trade deficit—are immediate and immediately observable.
Real (inflation adjusted) income has risen steadily since the recession ended 18 months ago. It has yet to reach its May 2008 peak, however, due in considerable degree to the slow growth of workers’ earnings.
Coincidentally, households are saving more than prior to the downturn.
As a consequence, while real consumer spending has increased during the rebound, it has only recently regained its prior top. Absent a sustained rise in disposable incomes—which depends on job growth—household spending will likely plateau. If so, look for the recovery to lose momentum.
Outlook Has Improved—Somewhat
The view here remains that employment will increase at an accelerating rate in 2011. But that was the expectation for last year; and while there was improvement, it fell well short of expectations.
In sum, despite the recent upward revisions in most forecasts (including here), they generally suggest that faster, but still slow, growth is something to be considered.
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The statements, opinions, and conclusions contained herein are based solely upon the author’s own studies, research, and personal experience. Neither J.H. Cohn LLP nor the author makes any representation or warranty as to the accuracy or completeness of this information. J.H. Cohn LLP and the author expressly disclaim any liability for any loss or damage which may be incurred, of any kind whatsoever, as a result of or arising from the use of any of the information contained herein or reliance on the accuracy or completeness of it.
Patrick J. O’Keefe is director of economic research at J.H. Cohn LLP. He can be reached at pokeefe@jhcohn.com or 877-704-3500.