Analysis: December 2012 BLS Jobs Report

The US unemployment rate edged down to 7.7% (from 7.9%; marking a four year low); the broader underutilization rate also decreased to 14.4% (from 14.6%).

• From a glass half full perspective, +146k jobs were added in November, exceeding consensus estimates of a +100k increase and quelling some fears of the Fiscal Cliff and Hurricane Sandy's impacts.  However, from a glass half empty perspective, September and October job figures were collectively revised downward by -49k and the unemployment rate dip was largely driven by the 350k people who gave up their job searches.

• The total number of unemployed (12.0M) remained flat while the long-term unemployed - those out of work for 6+ months - shrank to 40.1% (4.8M).

• Looking ahead, the January jobs report should reveal more about Sandy's true impact as it will contain a more complete accounting of the storm's impact.  Plus, we should (finally) gain some clarity about the Fiscal Cliff…anyone else tired of hearing about it? 

Consumers continue to seek retail therapy...

• The retail (+52.6k (+33.3k in clothing stores)) and leisure & hospitality (+23k; +14.1k in arts, entertainment and recreation)) sectors continued to staff up in support of the holiday shopping season and consumers' need to satiate their appetites (literally and figuratively). 

• Sizable gains were also seen in professional and business services (+43k; +18k in temp help services - long thought to be a precursor to full time hiring), health care (+20k) and information (+12k).  In contrast, several sectors pared payrolls - construction (+20k) and manufacturing (-7k; -18k for non-durable goods) - with the latter attributable to the higher inventories that companies are contending with. 

• The public sector remained relatively flat (-1k total loss) with gains at the state level offsetting losses at the federal and local levels.

What’s in store? Key watch items…

On the bearish side:

• EU.  The European Central Bank (ECB) cut its 2013 economic forecast for the Euro Zone from +0.5% to -0.3%. This comes on the heels of a Q3 GDP reading of -0.1%…marking the fourth straight quarter of contraction.  While the ECB believes that improved financial market confidence and accommodative monetary policies will enable a gradual recovery in late 2013, with growth in the range of +0.2 to 2.2% in 2014, its questionable strategy of "growth through additional belt tightening" will continue to raise doubts about the bloc's ability to do so.  Note:  The EU continues to be the US' biggest trade partner, accounting for $636B in trade in 2011.

• Help wanted.  The US has had 3M+ job openings for over a year now…leading many to conclude that the US is suffering from a skills gap crisis.  However, upon a closer look at the Jobs and Labor Turnover Survey (JOLTS), there is little data that supports this claim (e.g., manufacturing, long thought to suffer from a dearth of skilled workers, only accounted for 6% of job openings).   Nonetheless, this prophecy may come to pass as industries, such as utilities and construction, increasingly contend with the retirement of skilled workers without a replacement pipeline in place. 

On the bullish side:

• US = energy superpower?  As technology advancements make refineries more efficient and we continue to tap into our newfound abundance of natural gas, the US is on track to be a net exporter of petroleum products in 2011 for the first time in 62 years (source:  US Energy Information Administration).  This is noteworthy because, aside from the US beginning to realize its energy independence ambitions, our nation is becoming a reliable, low cost center of energy outside of the Middle East.  The ancillary benefits are already apparent:  Apple's decision to insource assembly of some iMacs in the US.  As this trend continues, we should expect to see more companies follow suit with an accompanying increase in payrolls likely. 

Analysis: November 2012 BLS Jobs Report

The US unemployment rate ticked up to 7.9% (from 7.8%); the broader underutilization rate decreased to 14.6%.

• A net +171k jobs were created in October, far exceeding consensus estimates of +125k and marking the 32nd straight month of job creation; furthermore, August and September payrolls were collectively revised upward by +84k.

• The total number of unemployed (12.3M) remained flat while the long-term unemployed - those out of work for 6+ months - increased to 40.6% (5.0M). 

• The civilian labor force grew by +578k (to 155.6M) while the participation rate gained by 0.2% (to 63.8%), highlighting the US' improving employment sentiment and driving the slight increase in the overall rate.  

• Looking ahead, additional layoffs may be in store as planned job cuts among US based employers surged 41% in October as companies contend with weaker Q3 results (Note:  Nearly six in 10 companies within the S&P 500 reported weaker earnings; this could be the first time in 11 quarters that Corporate America reported a collective earnings decline; Source:  Challenger report) and the aftermath of Hurricane Sandy.  However, layoffs for the year are still well below last year's rate.

Broad-based gains; consumers leading the way...

• In another sign of improving sentiment, several consumer-driven sectors grew their payrolls:  retail (+36k), leisure and hospitality(+28k), construction (+17k with sizable gains in specialty trade contractors) and manufacturing (+13k).  These trends should continue as we approach the all important holiday season and the slowly healing housing market enables more consumers to feel better about their situations. 

• Significant gains were also seen in professional and business services (+51k including a +13.6k increase in temp help) and health care (+30.5k)

• The public sector reversed course in October as government shed jobs (-13k) with losses occurring at levels.

What’s in store? Key watch items…

On the bearish side:

• EU.  Things appear to be getting worse.  The EU's Purchasing Managers' Index, a key manufacturing and services gauge, fell to 45.8 in October…the fastest rate in three years (Note:  A score above 50 signals growth).  Further contributing to the crisis, are diverging European inflation rates whereby southern economies (e.g., Spain, Portugal) are rising in contrast to their northern counterparts (e.g., Germany, France).  Subsequently, this phenomena may make it harder for the southern countries to sell goods abroad and compete - especially in countries where unions have secured wage increases indexed to inflation. 

• Fear of uncertainty.  While the upcoming US election will bring clarity to the policies that will help shape the global economy, the much larger, financial "Frankenstorm" aka the fiscal cliff lurks with a doomsday scenario of $400B in tax increases affecting 90% of Americans and amounting to an average household tax hike of $3500 (Source:  Congressional Budget Office) coupled with massive spending cuts.  Anecdotally, this uncertainty has been impacting the US economy as companies restrain their investment and hiring decisions.  By some accounts, the fiscal cliff may cause a -3% hit to 2013 GDP (with the payroll tax increase alone accounting for -0.6%), most certainly tumbling the US back into recession.

On the bullish side:

• Housing.  The slowly healing housing market has positively contributed to GDP for six straight quarters with residential fixed investment adding 0.33% in Q3 (vs. 0.3% in Q311).  The benefits are readily apparent:  improved consumer confidence (highest since February 2008) and spending and a growing US manufacturing sector.  As an added reason for optimism, an increasing number of houses are being sold to "boomerang buyers" - families and individuals who previously went through foreclosure.  This number may rise (along with the expectant increase in housing prices) as more buyers who previously defaulted escape the FHA's three year waiting period for mortgage eligibility. 

• China.  The Jeckyll and Hyde act, which has characterized China over the last several years, is starting to more resemble the good doctor.  Consider this:  China's manufacturing sector grew to a four month high, inflation remains in check and the country has signaled its intent to reform state-run companies (e.g., rail, post and salt) and industries (e.g., power, telecommunications, oil and petrochemical).  By loosening state control, many economists believe this will be a key step in re-igniting China's cooling economy.  If so, this may just be what the doctor ordered for the larger, global economy (sorry…I had to).

Analysis: October 2012 BLS Jobs Report

The US unemployment rate dropped to 7.8% (from 8.1%), marking the lowest level in over 3.5 years; the broader underutilization rate remained flat at 14.7%.

• A net +114k jobs were created in September, in line with consensus estimates of +118k; even better, July and August payrolls were revised upward by +86k.

• The total number of unemployed (12.1M) decreased by -456k while the long-term unemployed - those out of work for 6+ months held steady at 40.1% (4.8M). 

• Unlike previous dips in the unemployment rate that were attributable to more Americans leaving the workforce, this one could be construed as the result of true job growth as the civilian labor force actually grew by 418k.  Quite perplexing, however, is how the rate could drop this much in spite of the underutilization rate holding steady…one of the unfortunate drawbacks of using two different data sources (establishment (payrolls) and household surveys) to calculate the overall rate.

Services continuing to pick up the slack...

• Among the big gainers:  health care (+44k; +295k yoy increase), transportation and warehousing (+17.1k), food and drinking places (+15.7k), financial activities (+13k) and professional and business services (+13k). 

• These gains offset  the continued drop in manufacturing (-13k; -38k over the last two months).

• The public sector was a job creator in September (+10k), with gains seen at the Federal and State (education) levels.

What’s in store? Key watch items…

On the bearish side:

• Global Head Cold.  The popular adage "when the US sneezes, the world catches a cold" spoke to our profound impact on the global economy.  The persistent global malaise means we no longer lay claim to this distinction alone.  The ongoing Euro debt crisis coupled with China's cooling economy is perpetuating a vicious circle which, according to the World Trade Organization, will limit global trade expansion to 2.5% in 2012 (vs. 14% growth in 2010 and 6% average growth over the last two decades) and quell the US' export engine which accounted for nearly half of our growth during the recovery.  Coincidentally, the International Monetary Fund forecasts 2012 global economic growth to be 3%.

On the bullish side:

• Housing.  It appears that one of the final legs of the "economic growth stool" may have finally found its footing.  Record low interest rates are driving mortgage application and refinancing spikes, not to mention home price appreciation.  With less money being spent on mortgages (which represented 33.8% of each households average spending in 2011), consumers have more money to spend on other things…like beer (Note:  US beer shipments rose 1.9% YTD after falling for three straight years).  However, we must remain wary of a couple factors that will continue to suppress the housing recovery:  Fannie/Freddie Mac's "putbacks" (forcing banks to take back sub-prime mortgages) and Dodd-Frank legislation (requiring banks to rigorously document borrowers' ability to pay).

On the neither bearish/bullish side (sorry…I'm trying to remain like Switzerland on this one):

• Presidential Election.  The unemployment rate drop to below the symbolic 8.0% threshold deprives the Republican Party of a critical argument for regime change, five weeks before the November election.  Could this be the 2012 game changer?  If so, US businesses and citizens alike will need to consider the certainties of President Obama's platform:  Obamacare, tax legislation, business regulation, etc.

Analysis: September 2012 BLS Jobs Report

 The US unemployment rate ticked down to 8.1% (from 8.3%); the broader underutilization rate decreased to 14.7% (from 15.0%).

• The US labor market continues to tread water with +96k jobs created in August, well below consensus estimates of +125k and the +149k average monthly growth rate in 2012; further pouring salt in the wound, June and July employment figures were collectively revised downward by -38k. 
• The total number of unemployed (12.5M) decreased slightly while the long-term unemployed - those out of work for 6+ months also shrank to 40.0% (from 40.7%).
• Quite alarming, 368k workers left the labor force last month…this was the primary driver of the decrease in the unemployment and underutilization rates.  

Americans still hungry and thirsty…services up as well.

• In a sign that may speak to improving sentiment and consumer resiliency, food services and drinking places continued to gain (+28k; +300k over the last 12 months) while other service-related sectors also grew:  professional and technical (+27k which includes gains in computer-related (+11k) and consulting (+9k) services), health care (+17k) and utilities (+9k).
• Manufacturing shed 15k jobs last month as companies remain weary of increasing payrolls given the lingering economic struggles in the EU and China and the cloud of uncertainty caused by the US' looming fiscal cliff.
• The public sector continued to shed jobs with the most losses being experienced at the state and local government levels (-7k).

 What’s in store? Key watch items…

On the bearish side:

• The decline of the middle class.  Based on a study by the National Employment Law Project (NELP), the market for middle class jobs has shrunk with most job creation occurring in lower paying areas (see the aforementioned trend in food and drinking).  Consider the following:  mid wage occupations (as based on median incomes) suffered 60% of the job losses during the recession but accounted for only 22% of job growth during the recovery.  In contrast, higher wage occupations lost 19% but grew by 20% and lower wage occupations lost 21% but grew by 58%.  This evolving structural change will continue to "hollow out" the middle class and may serve as a long-term weight on the US economy.
• The jobless generation?  The International Labor Organization predicts that Euro zone youth unemployment (for 15-24 year olds) will remain above 21% through 2017; in the US, it will range between 13-17%.  The impacts of temporary and long-term unemployment  among this group may be catastrophic leading to future generations being trapped in lower paying jobs and talent shortages as younger workers are deprived of opportunities to develop skills and/or move abroad.

On the bullish side:

• Euro zone.  Hard to believe that the EU would be on the bright side of the ledger given its ongoing struggles.  However, there is some cause for hope and change (apologies…I watched President Obama's speech last night).  Given the ECB's decision to stabilize struggling government debt markets through the unlimited purchase of short-term bonds (thus lowering borrowing costs and infusing the likes of Spain and Italy with much needed capital to run their countries), it is hoped that this move will go a long way towards quelling their crises.  The catch:  countries that avail themselves of this solution must agree to additional budget cuts and economic reforms…a tough political sell. 
• Household debt.  While much has already been made about the housing market recovery, another positive trend to note is the US' gradually decreasing household debt.   Total US household debt fell by 0.5% in Q2 to $11.38T, almost entirely due to falling mortgage balances.  With further debt reduction, this may put US consumers on firmer financial footing.

Analysis: August 2012 BLS Jobs Report

The US unemployment rate ticked up to 8.3% (from 8.2%); the broader underutilization rate increased to 15.0% (from 14.9%).

• In a surprise, a net +163k jobs were created in July, far surpassing consensus estimates of +95k and June’s paltry +64k increase; on average, 105k jobs have been created over the last three months.
• The total number of unemployed (12.8M) increased slightly while the long-term unemployed - those out of work for 6+ months decreased significantly to 40.7% (from 41.9%). 
• However, the jobs report was not all good news as the unemployment rate rose despite a US population increase and the departure of 150k civilians from the labor force – two factors that usually act to decrease the overall rate.

Positive signs ahead?

• Quite interestingly, several consumer/employer sentiment-related sectors experienced growth:  professional and business services (+49k; +14k in temp help), food services and drinking places (+29k), and manufacturing (+25k, with most gains in durable goods).
• Employment stalwart, health care, grew (+12k) while retail, construction, transportation and warehousing and financial activities showed minimal change.
• The public sector continued to shed jobs with the most losses experienced at the local government education level (-7k).

What’s in store? Key watch items…

On the bearish side:

• Political gridlock.  In the ongoing saga worthy of its own soap opera, the uncertainty caused by government inactivity continues to weigh on the global economy and job growth.  From the EU’s political haggling over how to handle its sovereign debt crises, to US tax/health care reform, to Congress’ political game of chicken (aka the looming fiscal cliff), government squabbling has made companies wary of hiring as they have no idea what 2013 holds in terms of fiscal/tax policy.  Hopefully, with the conclusion of the upcoming US elections, markets will be able to gain more clarity.
• Manufacturing.  Global factory output continues to decrease as the effects of the EU and China’s economic slowdowns take their toll.  In the US, ISM’s July index reading (49.8) marked the second consecutive month below 50, the baseline threshold for growth.  China and EU fared no better as their respective indicators also showed contraction.  In the near term, it doesn’t appear that things will get any better as order backlogs fell and businesses’ inventories surged.

On the bullish side:

• Housing.  Housing is slowly waking from its 5+ year malaise.  According to the Commerce Department, housing added 0.43 of a point to Q112 GDP (which was 2.0).  With continued growth, the US may finally be able to rely on a major contributor to GDP growth (and consumer spending), one critical to sustained economic recovery.  Nonetheless, the housing sector still has a long way to go…home values are down by $7T from their 2006 peak and 11M+ Americans owe more than $700B more than their homes are worth.

Analysis: July 2012 BLS Jobs Report

The US unemployment rate held steady at 8.2% despite today's less than stellar jobs report; the broader underutilization rate again increased - this time to 14.9% (from 14.8%).  
• A net +80k jobs were created in June, well below consensus estimates of +100k and the +176k figure reported by ADP; an average of +226k jobs were created in the first three months of 2012; in contrast, only +75k jobs were created during this last quarter.
• The total number of unemployed (12.7M) held steady while the long-term unemployed - those out of work for 6+ months decreased significantly (to 41.9% from 42.8%). 

• Brighter days ahead?  Companies announced fewer layoffs in June (37.5k), the lowest figure in 13 months, according to a report by Challenger, Gray & Christmas.  Moreover, approximately 374k people filed for first time unemployment benefits, a six week low and more evidence that the pace of layoffs is subsiding.

Not much to write home about...
• Significant growth in specialty skill sectors, moderate growth everywhere else:  professional and business services (+47k; +25k in temp help), health care and leisure and hospitality(both +13k), manufacturing (+11k) and construction (+2k; +10k for specialty trade contractors) experienced gains.

• Retail (-5.4k; +1.0k for clothing stores), government (-4k), transportation and warehousing (-2.2k) experienced modest declines.

• Noteworthy…year-over-year declines in unemployment rate by industry:  construction (-2.8%), manufacturing (-2.3%), wholesale and retail trade (-1.4%), leisure and hospitality (-1.1%), government (-0.6%) and professional and business services (-0.2%); notable exception:  education and health services (+0.4%).

What’s in store? Key watch items…
On the bearish side:

• Europe.  Despite yesterday's monetary policy interventions by the European Central Bank (ECB) and the Bank of England (BOE), it is hard to see an end to the financial crises that has plunged the EU into recession.  While an agreement in principle for closer integration of Euro Zone banks provides a (very) small glimmer of hope, EU leaders will continue to struggle with the political balancing act of country vs. currency bloc interests which has so far stifled meaningful progress.  The EU's struggles are hitting home, depressing US corporate profits from Europe by $48.1B in the first three months of 2012 and driving weaker export growth:  only a 4.2% increase (vs. a previous estimate of 7.2%).

• Consumer spending.  The Commerce Department revised Q1 12 consumer spending for a second time from 2.7% to 2.5% (vs. an initial estimate of 2.9%), suggesting that the US' consumer-driven recovery was never as robust as originally thought.  Consumer spending, which accounts for nearly 70% of GDP, isn't likely to recover until the job market does.  With so many unemployed, there is little upward pressure on wages.  Subsequently, hourly earnings is lower now than it was when the recession ended in June 2009 (when adjusted for inflation).  In fact, household spending decreased in May - the first drop in nearly a year.

On the bullish side:• Housing.  Based on the May housing report, pending homes sales rose 5.9% from April and stood 13.3% above year-ago levels.  The May report hasn't seen these levels since 2006 when the housing bubble peaked.  Based on the data, it appears that the housing market has finally turned the corner and the US economy can begin ridding itself of a key growth barrier.

• Additional central bank intervention (kind of a stretch but we'll take what we can get at this point).  Given the spate of dour economic data, central banks of the world have signaled their intent for additional monetary policy interventions to spur growth (e.g., US and BOE quantitative easing, ECB and China interest rate cuts, lower Chinese deposit rates, etc.), a position confirmed by Fed Chairman Bernanke this week.  While the jury is still out on the effects of central banks' efforts, recent studies suggest that the Fed and BOE efforts have made conditions easier for businesses to finance future growth.  With inflation subdued, we should expect to see continued intervention(s).

Analysis: June 2012 BLS Jobs Report

The US unemployment rate ticked up to 8.2% (from 8.1%), the first increase since last summer; the broader underutilization rate also increased to 14.8% (from 14.5%).  
• A net +69k jobs were created in May, far below consensus estimates of +150k; April and March jobs figures were also revised downwards (-49k in total), the first time this has happened in five months.
• The total number of unemployed (12.7M) held steady while the long-term unemployed - those out of work for 6+ months increased (to 42.8% from 42.6%). 

• One glimmer of hope:  The labor participation rate increased to 63.8% (from 63.6%) - the result of 642k additional workers re-entering the workforce.  This underscores the improving sentiment among the unemployed.

A weakening labor market...
• Job growth remained widespread albeit muted: health care (+33k), transportation and warehousing (+36k), wholesale trade (+16k) and manufacturing (+12k) all experienced gains.

• Construction and government continued to pare payrolls (-28k and -13k, respectively); professional and business services remained flat (-1k), however, temporary help services did increase (+9.2k).

• Noteworthy:  The average workweek for all employees edged downward to 34.4 hours (-0.1) which is equivalent to losing around 200k jobs in terms of total earned income for the economy (source:  Standard Chartered Bank).

What’s in store? Key watch items…
On the bearish side:

• Europe.  The sovereign debt crises plaguing the "PIIGS" countries (namely Portugal, Ireland, Italy, Greece and Spain) is well chronicled.  Greece's exit from the EU may inflict even more pain for these similarly challenged countries as borrowing rates skyrocket.  While the US has taken steps to insulate itself from the EU's ongoing struggles, it is not free from risk.  After all, the EU are huge importers, accounting for 5% of the rest of the world's GDP (but only 1.2% of the US's).  They are also huge lenders, having lent more than $6T globally (twice as much as as US banks and 10% of our GDP).  A pull back by EU banks would limit access to credit, potentially staving economic development in developed and emerging economies alike.   

• Consumer confidence.  The Conference Board's consumer confidence index fell to 64.9, its lowest reading in four months - largely attributable to the softening labor market.  The impact of this can be seen in the slowdown in Q1 12 GDP (1.9% annualized vs. 3.0% in Q4 11) as companies were less aggressive about restocking their inventories.  However, on the brighter side of things, consumer spending did increase 2.7% in Q1 12, the largest gain in consumption since Q4 10.

On the bullish side:• Less pain at the pump.  With Memorial Day kicking off the unofficial start of the driving season, consumers may be in line for a respite from high gasoline prices that have pressured their wallets in years past.  According to the Energy Information Administration,  a surplus of crude coupled with less global demand should keep prices in check during the Summer months.  Of course, this is barring any major geo-political surprises…including hurricanes.

• China.  While much attention has been paid to China's "slowing" economy (2012 GDP is expected to be around 8.2%, the lowest growth figure since 1999), much of this phenomenon is attributable to Beijing's efforts to cool its overheating economy, protect against asset bubbles and shift their economic model from one reliant on exports to domestic consumption (aka rebalancing).  While this shift is begrudgingly taking longer than expected, China's concerted "Go West" development strategy (they've significantly increased investment to urbanize western provinces to meet its pledge of raising incomes for the poor and achieving social stability) may help raise the overall standard of living and fuel long-term consumption.  We'll see if the "rising tide truly lifts all boats."

Analysis: May 2012 BLS Jobs Report

The US unemployment rate decreased to 8.1%; the broader underutilization rate held steady at 14.5%.
• A net +115k jobs were created in April, far below the +170k consensus estimate…yet another sign the US economy is not out of the woods yet. Some positives to consider: February and March payrolls were revised upward (a net +52k) and the unemployment rate is at its lowest level in 3 years.
• The total number of unemployed (12.5M) and long-term unemployed – those out of work for 6+ months (5.1M or 41.3%), remained flat. Note: Over the year, the long-term unemployment has decreased by -759k.
• The labor participation rate decreased to 63.6% (from 63.8%), a direct result of over 350k workers leaving the labor force. Give me something to believe in…


While the jobs report did little to raise hopes of averting a third consecutive summer of sluggish growth, there were several bright spots:
• The resiliency of the US consumer was evident in several sectors: retail (+29k), food and drinking places (+20k) and manufacturing (+16k); other positives: professional and business services (+62k; including +21k in temp help services), health care (+19k) and educational services (+4k).
• Among the laggards, transportation and warehousing (-17k), government (-15k) and construction (-2k) all saw decreases.
• One interesting fact for your next cocktail party: since February 2010, the private sector has created nearly 4.3M jobs; in contrast, the public sector has pared over 1M jobs since May 2010.


What’s in store? Key watch items…
On the bearish side:
• Another bubble? According to Smart Money, US stock are now more worth more than GDP. When this phenomenon occurred in the past, the following year resulted in the 2000 dotcom and 2006 housing bubbles. While many analysts believe there is little probability of a similar scenario this time around (as many companies are less dependent on the US economy (e.g., S&P 500 collects 1/3 of revenues from overseas)), it's worth monitoring.
• Long term outlook. The Fed's recent outlook on the economy painted a glass half empty scenario. On the one hand, they expect the US economy to grow between 2.4 - 2.9% this year (vs. 1.7% last year). On the other hand, they expect 2013 and 2014 to be considerably weak due to persistent strains within global financial markets, high energy prices, the depressed housing market and a looming "fiscal cliff" (i.e., Bush tax cuts, payroll tax cut and extended unemployment benefits set to expire at the end of this year).
On the bullish side:
• Productivity. US productivity decreased at 0.5% annual rate. This is notable because businesses are finding it harder to squeeze more output from their existing workforce. Subsequently, this trend along with the $2T in cash in company coffers may drive increased hiring in the coming months.
• China. Recent figures on manufacturing within the #2 global economy painted a glass half full scenario. While the Purchasing Manager Index showed a sixth straight month of contraction, the larger trend pointed to stabilizing conditions. Economists believe Chinese economic growth will bottom out in Q2 and re-acclerate to 8.5% in the second half of 2012.

Analysis: April 2012 BLS Jobs Report

The US unemployment rate decreased to 8.2%; the broader underutilization rate decreased to 14.5% (from 14.9%).
• A net +120k jobs were created in March, significantly below consensus estimates of +203k, tempering recent exuberance that the US labor market has finally shaken its recessionary doldrums. Note: The US has regained only 3.9M of the 8.8M private sector jobs lost during the downturn.
• The total number of unemployed (12.7M) and long-term unemployed – those out of work for 6+ months (5.3M or 42.5%), decreased slightly. Note: Underemployment has decreased from 17.2% to 14.5% over the last 2.5 years.
• The labor participation rate decreased to 63.8% (from 63.9%), contributing to the unemployment rate decrease despite less than stellar job gains.

Still reason to be optimistic...
• Increases in manufacturing (+37k) and various service sectors – leisure and hospitality (+37k), healthcare (+26k) and professional and business services (+31k) – highlight continued consumer and business demand.
• Among the laggards, retail (-34k; flat within clothing stores), temp help services (-7.5k), construction (-7k), and government (-1k) were among the notable sectors that experienced decreases.
• Future employment reports will shed light if March was a blip or the start of another market slowdown. Note: One bearish theory is the relatively mild winter pulled job creation (that usually takes place during the Spring) forward; future job growth won’t be as great as previous months.

What’s in store? Key watch items…
On the bearish side:
• Europe. According to Markit Economics’, Euro zone business activity decreased to 49.1 in March from 49.3 in February (Note: Readings below 50 signify economic contraction). Moreover, Eurostat’s indication of a 0.1% decrease in retail sales underscores consumer wariness and the effects of government austerity programs. While EU GDP contracted 0.3% in Q411, S&P expects Euro zone’s recession to continue through September with a potential 2.5% drop in GDP during that timeframe.
• Voluntary turnover. While the March report highlights fewer job losers, ‘job leavers’ continued to trend upwards (1.1M in March vs. 0.9M a year ago), highlighting a potential shift to a ‘talent seller’s’ market.

On the bullish side:
• US consumer sentiment. Consumer spending increased 0.8% in February, the biggest monthly increase since last July. While the spending increase wasn’t accompanied by wage and salary income growth, this trend in conjunction with a drop in the savings rate to 3.7% (vs. 4.3% in January) highlights improving consumer confidence. Note: Consumer spending accounts for approximately 2/3 of economic demand.
• Signs of better things to come? With initial claims for unemployment benefits (357k; lowest since April 2008) and planned layoffs (the lowest level in 10 months according to Challenger, Gray & Christmas) both experiencing recent lows, these readings may signal continued improvements for the US labor market.

On the ‘somewhere in between’ side:
• Playing without a safety net? Given recent comments by Central Bank Leaders Bernanke and Draghi, it appears that efforts to prop up financial markets (via monetary easing) may be coming to an end. While this could be construed as a vote of confidence for the US economy, this does not bode well for the EU as it continues to grapple with its recession and debt crisis.

Analysis: March 2011 BLS Jobs Report

The US unemployment rate held steady at 8.3%, marking the sixth consecutive monthly decline; the broader underutilization rate decreased to 14.9% (from 15.1%).

• A net +227k jobs were created in February, well above consensus estimates of +210k; December and January jobs figures were also revised upwards (+60k in total); the three month moving average now sits at +245k.
• The total number of unemployed (12.8M) and long-term unemployed - those out of work for 6+ months (5.4M or 42.6%), remained flat.
• The labor participation rate increased to 63.9% (from 63.7%), highlighting the fact that more discouraged workers are re-entering the workforce. Note: As more discouraged workers return from the sidelines, the unemployment rate may increase or hold steady (like in February) if job creation can't offset the numbers.

Lots to be excited about...

• Job growth remained widespread: professional and business services (+82k; +45k in temp help services - a leading indicator of full time hiring), healthcare (+61k), leisure and hospitality (+44k) and mining (+7k) all experienced sizable gains.
• Construction (-13k), retail (-7k; -1.6k within clothing stores) and government (-6k; however, the rate of job loss within the public sector continues to decrease) all pared payrolls.
• Quite interestingly, increases in manufacturing jobs (+31k) highlight improving consumer demand. Subsequently, this is generating positive benefits further down the supply chain: transportation and warehousing (+10.6k) and wholesale trade (+8.4k).

What’s in store? Key watch items…
On the bearish side:

• Economic engines running out of gas? China and India's economies, two important global catalysts for growth, are slowing down with both governments expecting lower growth in 2012 (7.5% and 6.9% respectively…vs. 9+% growth in previous years). Their slowdowns are taking a toll (e.g., during Q411, EU businesses suffered their first drop in exports in 2.5 years leading to a -0.3% decrease in Q4 GDP and a humbling 0.7% GDP increase in 2011).
• Cheap money. The Fed's efforts to lift the US economy from the ashes (via its loose monetary policy) has contributed to a weaker dollar. While a weaker dollar is good for exports and GDP, it raises the price of imports (e.g., gasoline). While the Fed maintains its position of holding interests near zero until 2014, one has to be concerned about the longer-term impact on consumer demand.

On the bullish side:

• More money in US consumers' pockets. The cost of labor for non-farm businesses rose to 2.8% in Q411, higher than the 1.2% expected increase. Higher labor costs underscore the improving job market which is allowing workers to command better pay.
• EU feeling better. According to the European Commission, businesses and consumers in the Euro zone are feeling more optimistic about their economic prospects as evident by a second consecutive monthly increase in the EU's Economic Sentiment Indicator to 94.4 (vs. 93.4 in January). While this is still well off the long-term ESI average of 100, it was the highest reading since October 2011.

Penny Wise, Pound Foolish?

A couple months ago, I wrote about the emerging trend of U.S. companies insourcing production jobs back to the U.S. While this serves as great news for our blue-collar workforce, a rather different and alarming trend is befalling our skilled working class.

Based on a recent study by the National Science Board, in the six years through 2009 about 85% of growth in research and development workers employed by U.S.-based multinational companies has been abroad. While this isn’t all bad news. After all, U.S. companies aren’t necessarily closing labs or shedding jobs at home. They’re establishing strongholds within engineering and scientific talent hotbeds (Note: ~56% of the world’s engineering students are foreigners and 57% of doctoral degrees in engineering were awarded to foreigners, mostly from East Asia or India). One has to consider the long-term impact of the U.S.’ austerity efforts on our future supply of skilled talent.

Don’t get me wrong. I readily admit that the U.S. has for some time now spent way beyond its means (how long has it been since Congress delivered a balanced budget?) and significant steps must be taken to get our fiscal house in order. However, we must increasingly question the shortsightedness of continually cutting budgets for low-hanging targets like education and the arts (Note: Based on BLS figures, hundreds of thousands of teaching jobs have been cut over the last several years). Continued negligence by our elected officials may only exacerbate this alarming trend and further deplete our talent.

So while banging the austerity drum makes for good political theater, shouldn’t we be asking ourselves how much is too much? After all, I’d hate to mortgage our future for the short-term gains of the present (not to mention some congressional seats).

Analysis: February 2012 Jobs Report

The US unemployment rate decreased to 8.3% (from 8.5%), marking the fifth consecutive monthly decline; the broader underutilization rate decreased to 15.1% (from 15.2%).
• A net +243k jobs were created in January, well above consensus estimates of +125k.
• The total number of unemployed declined to 12.8M (from 13.1M); long-term unemployed, those out of work for 6+ months, decreased slightly to 5.5M (42.9% of all unemployed).
• When these figures are coupled with the employment-population ratio (which rose +0.3%), one can conclude the rate decrease was largely driven by job creation and not discouraged workers leaving the workforce.

Sustained broad based gains
• Job growth remained widespread: professional and business services (+70k), healthcare (+31k), construction (+21k), retail (+19k) and mining (+10k) were among the sectors experiencing significant job growth. Information (-13k) and financial and insurance (-7.5k) were the laggards.
• Quite interestingly, manufacturing (+50k; +44k in durable goods) and leisure & hospitality (+44k; +33k in food and drinking places) also showed sizable gains…offering further anecdotal evidence of increased consumer demand, sentiment and appetite (pun intended).
• Moderate losses were experienced in the public sector (-14k; -11k at the local level), further underscoring the private sector's prominent role in driving the labor market's recovery (and not government stimulus).

What’s in store? Key watch items…
On the bearish side (aside from the ongoing EU debt crisis and emerging confrontation in Iran):
• Consumer confidence. The Conference Board's gauge of consumer sentiment unexpectedly dropped to 61.1 (vs. consensus estimates of 68.0). While this is still a largely positive figure, continued deterioration may damper consumer demand which accounts for nearly 2/3 of GDP.
• Global growth. The International Monetary Fund cut its 2012 global growth forecast to 3.3% from 4%, citing the EU downturn as the largest barrier.

On the bullish side:
• China. By many accounts, China appears to have engineered a soft landing for its overheating economy. Inflation fell to 4.1% in December, the lowest in 15 months, and real estate investments and housing prices are cooling down (allaying fears of a real estate bubble). These trends may give the Chinese government more impetus to expand its pro-growth policies.
• The Fed. The Fed's decision to keep interest rates near zero until 2014 will continue to aid the recovery by maintaining historically low borrowing costs. Furthermore, it appears US inflation remains in check (for now).

On the neither bearish/bullish side:
• Upcoming election. Sustained improvements in the job market does not bode well for the challenging Republican party. Subsequently, companies must begin considering the longer-term effects of President Obama's policies (e.g., Obamanomics, Obamacare, etc.).

The times they are a-changin'

“The line it is drawn, the curse it is cast.
The slow one now, will later be fast.
As the present now, will later be past.
The order is rapidly fadin'.
And the first one now, will later be last.
For the times they are a-changin'.”

Remember a time not too long ago when it was en vogue to outsource practically everything from the U.S. to lower cost geographies? Based on a recent WSJ article “In U.S., a Cheaper Labor Pool”, it looks like the current world order is beginning to shift once again.

Consider the following. According to the BLS, in 2010 U.S. manufacturing labor costs per unit were 13% below the level they were a decade ago. Moreover, the U.S. outperformed Germany (where unit labor costs increased 2.3% vs. a decade earlier), Canada (+18%) and South Korea (+15%). The end result: companies like Caterpillar, Navistar and Electrolux to move production jobs back to the U.S.

So what’s driving this trend? More competitive wages, flexible work practices, increased automation, cheaper energy costs and a weaker dollar are key contributors. Additionally, proximity to customers, tax incentives, simplified supply chain logistics and improved worker productivity have also helped build a really compelling business case for continued insourcing.

While I wouldn’t call this a victory for the American worker (yet), I would chalk this up as a significant step in the right direction. The need to develop talent with a global perspective and management skills, especially in our increasingly global economy, will require companies to maintain workforces in their key markets. This is especially true for services and knowledge-based companies.

Implications for HR. The lower cost argument for outsourcing jobs is holding less weight these days. Over time, more companies will begin bringing jobs back to the U.S., consequently tapping into the same talent pools. To get ahead of this trend and win market share of talent, HR leaders should proactively:

• Analyze their business strategies to understand the organizational capabilities these new jobs will need to embody
• Execute plans to aggressively attract and develop these capabilities
• Refine their company’s employee value propositions (making sure to also account for generational considerations) to enable key talent retention mechanisms

The times are definitely changing. HR leaders should capitalize on this opportunity or risk being left behind.

Analysis: January 2012 BLS Jobs Report

The US unemployment rate decreased to 8.5% (from 8.6%); the broader underutilization rate (a more telling statistic) decreased to 15.2% (from 15.6%). Feb 2009 marked the last time both measures were this low.
• A net +200k jobs were created in December, above consensus estimates of +175k and the +150k level required to decrease the unemployment rate; more importantly, the rate decrease came from job creation rather than people leaving the workforce.
• The total number of unemployed declined to 13.1M (from 13.3M); long-term unemployed, those out of work for 6+ months, remained flat at 5.6M (42.5% of all unemployed).
• The US economy added 1.6M jobs in 2011...progress but far from the total required to offset the 8.8M jobs lost during the downturn.

Broad based gains with a "twist"
• Job growth was widespread: transportation and warehousing (+50k), retail (+28k), manufacturing (+23k), health care (+23k) and leisure and hospitality (+24k). These increases offer further anecdotal evidence of increasing consumer sentiment.
• However, it remains unclear whether this kind of job growth is sustainable as one fifth of the jobs created were seasonal (in the courier and messenger industry) to support online holiday shopping. Furthermore, temp help services, a good leading indicator of job creation decreased (-7.5k) and has remained flat for two months.
• The rate of job loss in the public sector decelerated (-12k), with most coming at the local government level; 280k jobs were lost in 2011.

What’s in store? Key watch items…
While last year’s “greenshoots” have turned into improved consumer sentiment/spending and demand, there is still much to be wary of. Here’s the long-term good and bad:

On the bearish side:
• Euro headwinds. The Euro Zone’s woes continue to weigh on global markets (Note: 40% of S&P 500 companies’ revenues come from the EU). Based on recent data, a downward economic spiral is taking place whereby austerity is driving job cuts, weaker consumer confidence and spending…leading to more entitlement spending and the need for more austerity to keep borrowing costs down. Based on ING estimates, EU GDP decreased 0.3% in Q4, technically putting the Euro Zone in recession.
• Company/Consumer Net Worth. US household net worth decreased by $2.4T in Q311, the steepest decline since the economic downturn roiled financial markets and one of the drivers behind the Fed’s recent call for increased action by Congress to address the housing crisis. While this has not hampered recent consumer spending trends, corporate spending remains depressed (based on the $2.1T in cash held by nonfinancial companies). Continued economic uncertainty will only exacerbate this trend.

On the bullish side:
• Domestic demand. Based on increased US factory orders, increased year-over-year consumer spending during the holiday shopping season and continued growth in manufacturing, the US labor market may have exceeded the tipping point whereby companies must ramp up hiring to satisfy demand.
• Inflation. US inflation appears to be moderating as evident from the Commerce Department’s measure of consumer prices (2.5%; 1.7% if food and energy are excluded) and the Labor Department’s CPI (0.8% annual rate in the last three months). Decreased inflation puts more money in the pockets of consumers and provides room for additional action by the Fed to stimulate/protect the US economy.