Good News on Employment at Last

On January 6 the BLS gave us the best news on employment growth we’ve had in years. They said that nonfarm payroll employment rose by 200,000 jobs on a seasonally adjusted basis from November to December. That brought the total gain in such jobs during 2011 to a total of 1,640,000.

This number will probably be revised upward when the data for January 2012 are released on February 3. That’s because those data will be revised in the annual benchmarking of the payroll data to the comprehensive job counts done every March.

On September 29, 2011, the BLS reported this revision for March 2011 was likely to be an increase of 192,000 jobs from what is currently shown. Some 140,000 of these were in the private sector, mostly in the “Trade, transportation and Utilities” and the “Professional and business services” categories. There was an increase of 52,000 jobs in the government sector.

Total employment grew by 1,570,000 people during the course of 2011. The unemployment rate was 9.1 percent (as revised) in January, June, July and August, all on a seasonally adjusted basis. That fell to 8.5 percent in December, the lowest since the 8.3 percent of February 2009.

The news was particularly good for college graduates age 25 and over. There were 47,131,000 of us in the civilian labor force in December, which gave us a labor force participation rate of 76.0 percent, far above the average of 64.0 percent.
A full 45,201,000 of us were employed and only 1,930,000 were unemployed. That resulted in an unemployment rate of 4.1 percent.

More good news from the BLS came in the JOLTS report of November, which was released on January 10. That showed there were 3.2 million job openings on a seasonally adjusted basis at the end of November.

For the 12 months ending in November, some 48.6 million hires were made. There were 47.2 million separations. Thus, there were 95.8 million hiring and separating decisions made to get a net increase of 1,400,000 nonfarm payroll jobs.

There has never been another labor market so dynamic as that of the United States. My expectation, as described in the article about my employment outlook in the December 7 issue of Business Week is that the pace of employment creation will pick up a lot in 2012.

We could easily see over 3.0 million net new nonfarm payroll jobs created this year. It should be fun to watch the employment news throughout 2012–a welcome change.

Consumers Made 2011 a Record Year for Retail Sales

On January 12 the Census Bureau gave us the preliminary (“Advance”) data for retail sales for December and the full year of 2011. They said total retail and food services sales were $4.7 trillion in 2011. That was a new record, up a big 7.7 percent from 2010.

Total retail sales alone were $4.2 trillion, up 7.9 percent from 2010. Every major category posted increases for 2011.

The largest growth was in sales at gasoline stations. They rose 17.7 percent to $533.6 billion. That was due to price increases, of course.

Nonstore retailers were in second place, up 12.5 percent to $397.0 billion. Motor vehicle and parts dealers had the third largest increase, up 9.9 percent to $817.9 billion.

Miscellaneous store retailers posted an increase of 8.1 percent to $121.1 billion, while food services and drinking places racked up sales of $494.2 billion in 2011, an increase of 6.1 percent. Clothing and clothing accessory stores saw sales hit $226.5 billion, a rise of 5.9 percent. Building materials and garden equipment and supply dealers were right behind with a 5.7 percent increase to $300.2 billion.

General merchandise stores did not do very well in 2011. Their sales rose only 3.5 percent to $630.9 billion.

Reflecting big declines in TV pricing, electronics and appliance stores saw sales eke out only a 0.4 percent gain in 2011. Their total was $100.9 billion.

Consumers may have been miserable in 2011, as reflected in every survey of consumer sentiment, but that sure didn’t stop them from spending. Rising employment and incomes in 2012 should guarantee another year of record retail sales and overall personal consumption expenditures.

Hip, Hip, Hooray! Real GDP Finally Sets a New Record

On October 27 BEA said that real GDP in the third quarter of 2011 was running at a SAAR of $13,352.8 billion. That finally exceeded the $13,326.0 billion set in the fourth quarter of 2007. Click here to read the full post and comment (Insights subscribers) »

Three Cheers for Congress

(That caught your eye, didn’t it?)

Most of us who follow the progress (or lack thereof) of the US economy spend an inordinate amount of time bemoaning the latest example of Congress failing to do what was needed to improve economic growth prospects.  Thus, it only seems fair to take notice when they pass legislation that is highly beneficial to the economy. Click here to read the full post and comment (Insights subscribers) »

We’ve Finally Entered Videoland

Hey, look what I finally figured out how to do! It’s been difficult to get videos of Jim but the folks running the annual UNC-Asheville Crystal Ball record the event and I found a wonderful student who converted a few segments for YouTube. The other three segments can be found on YouTube under EconForecasterJSmith (or click here to access our site).

Listen Up: Small Businesses ARE the Job Engine!

Reminder that Dr. Dunkelberg is the Chief Economist for the National Federation of Independent Business.

A recent Bloomberg article entitled “Small-Business Job Engine Myth Hampers Effort to Lift Employment” (September 29) reports “..the notion that small business is the force prosperity is not true.”  The author cites statistics such as, “Hourly wages at the largest companies, those with more than 2,500 employees, average around $27, compared with $16 in companies with payrolls of fewer than 100,” to prove that small businesses are of little value.  Out of 6 million employer firms, only 3,900 are this large.  If this is such a good deal, why aren’t all firms of that size?

Maybe a barber shop with 2,500 chairs is not economical and too large to serve a local market? Maybe wages are better at larger firms because they are specialized (high tech, manufacturing) and require better skilled workers (which not everyone is)? And maybe an economy full of these firms would not be able to provide the kinds of goods and services or convenience we like (no more “7-11s,” we just need a few 2,500 worker grocery stores to drive to?).

“Most small firms are restaurants, skilled professionals or craftsmen (doctors, plumbers), professional and general service providers (clergy, travel agents, beauticians) and independent retailers……most of these companies are going to remain small.” Really?  I guess the author thinks this is bad.  Notice that if all these firms hired 500 new workers, a very unlikely outcome even in good times, that would add about 2 million new jobs, just a few more than filed initial claims for unemployment last month (1.6 million)!

He quotes the view of Professor Scott Shane at Case Western Reserve: “Because the average existing firm is more productive than the average new firm, we would be better off economically if we got rid of policies that encouraged a lot of people to start businesses instead of taking jobs working for others.”  Now, statistically, new firms are less productive than existing firms since it takes time to build the business to capacity.  So I guess any new firm that starts must start at “maturity” or we should reject it.  Bill Gates should have worked for someone else since Microsoft couldn’t be started at the mature level it has today.

Nonsense, but this is the kind of misdirected thinking that is shaping policy. This assumes that Microsoft was not the result of many firms trying to compete to make the best operating system, but that somehow someone would identify Gates as the “right one” and every other entrepreneur should go to work for someone else. I guess government is supposed to do this (like with solar panels), making sure that once Gates is picked, he gets enough taxpayer money to open at “maturity” size.

More fundamentally, the author does not understand the main driver of job growth, and confuses our current problem of weak demand (not all the barber chairs are filled) with the factors that cause job growth (population growth), the need for more barber shops and the jobs this creates.  An economy with no population growth has no job growth in the long run (business cycles like our current situation can create lower employment temporarily). More people need more barber shops, clinics and all those small firms the author berates.  Yes, those firms don’t grow big very often, but it is the proliferation of these firms that accounts for the fact that over the past 20 years, 2/3 of the net new jobs are created by small firms.  Sure, more manufactured goods are needed too, but those are produced with fewer and fewer workers over time (productivity) and are not big generators.

So here are the facts (SBA website): 99.7% of all employers are small (under 500 employees); 90% have fewer than 20 employees; they produced 65% of the new jobs in the last 17 years; they produce more than half of private GDP; and they make up 97.5% of identified exporters and produce 13 times more patents per employee than large patenting firms (the author snipes “(So much for being seedbeds of innovation)”).

Small business is the R&D for the economy, where new ideas, products and processes are tested in the market.  Good ideas are rewarded with profits, the others “re-price” their assets and try again.  So what if “many go bust”? These are trials, looking for the best, letting markets (consumers) pick the winners, not the government.

In a growing U.S. economy 500,000 businesses terminate each year, 600,000 new ones are started, and lots of people are employed and gain experience and training in the process. That’s where the greatness of our economy comes from. (And a P.S., small firms don’t need tax incentives to hire, they need customers, so get it together in Washington and restore consumer confidence. 140 million workers spending more is a great stimulus and reason to hire and solve the unemployment problem.)

A (Little) Good News from Our Government

On September 29 the BEA released its “Third Estimate” of GDP for the second quarter of 2011.  They told us that real GDP grew at a 1.3 percent seasonally adjusted annual rate (SAAR) then, more than triple the puny 0.4 percent at a SAAR pace of the first quarter. Click here to read the full post and comment (Insights subscribers) »

Less Is More, If “More” Government Is What Consumers & Business Owners Fear

Recent polls indicate that far more consumers are concerned about the level of our debt and deficits than they are about unemployment (perhaps because 9 of 10 people who want a job have one, but all 10 are concerned about the now-clearer implications of excessive spending and debt accumulation). So, it would seem to follow that if consumers are most afraid of debt expansion, then more large government programs to “stimulate” the economy might heighten their fears and produce even more contractionary behavior (more saving, postponed buying) which could offset, even overwhelm, any expansionary power the new program might contain. Measures of consumer and business confidence in August strongly suggest that confidence in the future of the economy deteriorated in the past month.

Small business owners were clearly not convinced by the debt ceiling agreement, as sentiment, after eroding by small amounts for 5 months, took a plunge in the August survey; a vote of “no confidence” on policy. Only 7 percent thought business conditions would be better in 6 months while 41 percent expected them to be worse, 23 points worse than July. Twenty-one percent expected real sales volumes to rise over the next 3 months, but 34 percent expected declines, a net deterioration of 12 points from July. The prospect of no real progress on the spending/deficit path clearly discouraged business owners.

The August University of Michigan/Reuters poll of U.S. households provides more support for this proposition. Three-fourths expect “bad times” for the economy in the coming months, just below the survey record of 82 percent reached in 1980. Asked for examples of recent news that explained their pessimistic view of the economy, 25 percent provided spontaneous negative responses about government, a record in the 50-year history of the survey (the last record occurred in 2010 when the health care act was passed). When asked to rate the Administration’s economic policies, 57 percent gave a negative rating, a record high, exceeding the worst ratings given to any past President. Only 5 percent had a positive view of Administration policies. Survey director Dr. Richard Curtin put it well: “Consumers have shifted from being optimistic about the potential impact of monetary and fiscal policies to a sense of despair and pessimism about the role of the government.”

If more debt and government spending have become the major concerns of a majority of consumers, then the more the government tries to do with big spending and borrowing programs (“we’ll tell you how we’ll pay for it later”), the more fearful of the future many consumers and business owners will become, inducing them to spend even less and save more. This does not promote the recovery we need in the consumer sector to re-start hiring and small business investment.

If this is the case, it might be more stimulative to announce a bold plan of retrenchment in government spending, identifying very specific spending cuts (particularly in special interest spending which is not broadly popular) that would occur immediately to clearly and convincingly reduced the deficit and later even reduce the level of debt. With confidence in the future restored, consumers and business owners may well be much more willing to bet their earnings on the future by hiring and spending. This is the kind of broad-based “stimulus” that is needed, growth in the private sector (with the employed spending more money), not in government’s share of GDP. Absent confidence, tax cuts will be saved, not spent, and current consumption might be reduced as well. It’s a “confidence game” worth thinking about.

The US Job Market Remains Very Active

The JOLTS (Job Openings and Labor Turnover Survey) report that the BLS issued on September 7 showed that robust job activity continued in July.  On July 29, there were 3,228,000 job openings in the US.  The overwhelming majority (2,900,000) were in the private sector, but there were 328,000 government job openings, too.  Most of these (262,000) were in state and local government, but there were 66,000 federal government openings as well. Click here to read the full post and comment (Insights subscribers) »

Very Good News from Consumers

On August 12 the Census Bureau told us that total retail and food services sales for July were a seasonally adjusted record of $390.4 billion.  That was an increase of 0.5 percent from June (which itself was revised upward from a 0.1 to a 0.3 percent increase from May) and was 8.5 percent above July 2010.

Retail sales alone were a record $349.5 billion, up 0.6 percent from May and 8.6 percent above a year earlier.  Gasoline stations had the biggest increase, up 23.6 percent from a year earlier.

Total retail and food services sales for the first seven months of 2011 were $2.66 trillion.  That’s up 7.9 percent from the same period of 2010.

This very good report should dispel much of the “doom and gloom” talk that’s been going around the past two weeks.  It marks a very good start to personal consumption expenditures for the third quarter.  They should make a much larger contribution to real GDP this quarter than the paltry 0.07 percent in the second quarter.  That was the lowest since the outright contractions to growth from real PCE in all four quarters of 2008 and the first two quarters of 2009.  It was 1.47 percent in the first quarter of 2011.

Consumers are obviously spending freely despite being miserable about the economic outlook.  On August 12 Reuters reported that the University of Michigan Index of Consumer Sentiment (ICS) dropped to 54.9 (March 1966=100) in the first half of August from the already low level of 63.7.

That’s the lowest number since the record of 51.7 set in May 1980.  That was in the depths of the 1980 recession, which was triggered by President Carter’s decision to use the Credit Control Act of 1969 in a futile effort to reduce inflation, which was running well above 10.0 percent at the time.

Consumer spending makes up a little over 70.0 percent of real GDP.  Thus, it’s critical that consumers keep on shopping no matter how unhappy they are with the economic environment.