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Job Market Brightens as U.S. Payrolls Surge in March
April 2, 2010

Health care, which grew steadily even during the depths of the recession, has added 588,000 jobs since the start of the downturn over two years ago, including 27,000 jobs in March.

“We have had this massive disaster, but we’re at a place now where things are stabilizing,” said Heidi Shierholz, an economist at the Economic Policy Institute in Washington. “But the report does not signal yet that the private sector is poised to create jobs at a healthy enough rate to start bringing unemployment down.”

Indeed, the government predicts the jobless rate will average 9.8 percent next year and 8.4 percent in 2012 before falling to 5 percent in 2016. The rate was 4.7 percent in November 2007, the month before the recession began.

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The ISM Manufacturing Index measures the rate of change in manufacturing output. Above 50 indicates expansion. Actual aggregate output is still low:

Holding back job growth? Workers' awesome output
March 31, 2010

"One of the great surprises of the economic downturn that began 27 months ago is this: Businesses are producing only 3 percent fewer goods and services than they were at the end of 2007, yet Americans are working nearly 10 percent fewer hours because of a mix of layoffs and cutbacks in the workweek."

My comment: Excluding the external sector, U.S. output is even lower (since the U.S. current account deficit is 3% instead of 6% of GDP). To achieve a U-shaped recovery, real GDP growth needs to expand at a much faster rate (in 1982-83, real GDP growth averaged 8.5% for five consecutive quarters).

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It seems, the Fed understands the problem well:

Federal Reserve Bank of New York
The U.S. Economic Outlook
April 1, 2010
William C. Dudley, President and Chief Executive Officer

"I believe that the recovery is likely to be quite muted compared with past recoveries.

The early stages of past recoveries have been led by consumer spending, particularly for durable goods and residential investment. For example, in the first year of recovery following the deep recessions of 1973-1975 and 1981-1982, real consumer spending increased an average of 6.5 percent and residential investment rose an average of 38 percent. It is unlikely that we will experience this type of strength this time. Households have suffered unusually large shocks to both income and wealth and many remain highly leveraged.

Real consumer spending increased at a 2.25 percent annual rate over the second half of 2009 and looks to be growing at about that rate in the first quarter of 2010.

Residential investment did increase over the second half of 2009, boosted by relatively low mortgage interest rates, lower home prices and the first-time home buyer tax credit. But recent data on the housing sector indicates that the recovery has stalled. As with consumption, we are unlikely to see the typical surge of housing starts and residential investment that was a key feature of most past recoveries.

Given that the personal saving rate is still relatively low, it will be hard for consumer spending to grow more quickly without large increases in real labor income. But big increases in real labor income won't be possible without a much stronger recovery in output. And a much stronger recovery in output is unlikely without stronger consumption."

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PeakTrader:

U.S. durable goods, seasonally adjusted for December 2007 (when the recession began) was $224.1 billion.

In February 2010 (reported March 24th) U.S. total orders rose to a seasonally adjusted $178.1 billion, including:

"The increase was led by the second huge jump in demand for commercial aircraft, an increase of 32.7% which followed a 134.9% rise in this volatile category in January."

Given volatile components in durable goods, U.S. new auto sales may be a better proxy to measure U.S. manufacturing (and U.S. consumption) in the "global economic boom:"

2006 16.6 million
2007 16.2 million
2008 13.2 million
2009 10.4 million

2010 The seasonally adjusted annual rate for March 2010 was 11.7 million.

Ignoring population growth, if the U.S. reaches 13.2 million auto sales in 2010 and 16.2 million in 2011, then that would be a V-recovery.

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Of course, "housing starts" is still in a deep depression:

2006 Jan 2.273 million
2007 Jan 1.409 million
2008 Jan 1.083 million
2009 Jan 0.488 million
2010 Jan 0.611 million

2010 Feb 0.575 million

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From article:

"Spending on durable goods that influences several years are taken most often in a climate of trust and expected growth. Otherwise, economic actors would not hesitate to postpone or even cancel their purchase decisions."

To be meaningful, two areas used in the "Durable Goods Orders" must be removed: Armaments and transport. Indeed, these two sectors are extremely volatile."

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Moreover, U.S. imports are way down:

Current account deficit rises to $115.6B in 4Q
Mar 18, 2010

For the year (2009), the deficit in the current account plunged by 40.5 percent to $419.9 billion. Last year's deficit represented 2.9 percent of the total U.S. economy.

America's current account deficit soared to an all-time high of $803.5 billion in 2006, which represented 6 percent of GDP.

Gregory Daco, an economist at IHS Global Insight, said he was looking for the current account deficit to rise to $554 billion this year (2010), which would represent 3.7 percent of GDP.

"The recession may have temporarily watered down global imbalances but old habits die hard," Daco said. "As the world economies recover, the U.S. current account deficit will climb and surpluses in countries with export-led growth such as Germany and China will resurface."

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Durable goods is seasonally adjusted monthly data. Here's annual data for 1997:

"In 1997, U.S. consumers spent $659.4 billion on durable goods (8.2 percent of GDP). Producers spent $615.2 billion on durable equipment in 1997 (7.6 percent of GDP)."

"In addition, durable goods contributed to the GDP in the categories of exports and government purchases. Overall, the production of durable goods accounted for $1.316 trillion (16.3 percent of GDP) in 1997."

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The expansion was inevitable, given the Fed's quantitative easing, TARP, and the massive fiscal spending. Yet, we're closer to the trough, in mid '09, than the peak, in Dec '07.

I suspect, much of the recovery is consumers and producers buying after postponing major purchases rather than new demand.

The question should be why is this rebound from the depths of the deep recession so weak?

The U.S. economy rebounded strongly from the last severe recession, in 1981-82, averaging 8.5% real growth for five consecutive quarters, in 1982-83.

The current expansion, which is already slow, is overstated by the 3% of GDP lost in imports, and consumption growth is at one-third the level compared to the 1981-82 recession.

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Government has caused uncertainty or confusion. For example, there's a reason why "fat cat" bankers are more hunkered down than in prior recessions.

Government has been accelerating and braking growth simultaneously. There has been much effort to get nowhere. I guess, that's what happens when a bunch of lawyers micromanage an economy.

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Scott J. Brown, Ph.D.
Senior Vice President, Chief Economist
Raymond James & Associates
April 5, 2010

The economy is growing again. Recent data reports have been consistent with a gradual recovery. While the advance estimate of 1Q10 GDP growth won’t be released until later this month, it appears likely that real GDP growth may have been close to a 4% annual rate. As with 4Q09 GDP growth, much of that is expected to be inventories. Underlying demand still appears relatively lackluster at this point in the recovery, but it is increasing.

A number of headwinds lie ahead in the second half of this year. The fiscal stimulus will start to ramp down. The Bush tax cuts will sunset at the end of the year. State and local government budgets remain under considerable strain. Residential housing problems will linger and commercial real estate is expected to be a problem. However, these forces are likely to only dampen growth, not send us into a double dip.

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OECD Sees G-7 Economic Growth Slow, Germany Contracting
APRIL 7, 2010

G-7 economies will continue to grow in the first half of 2010, but at a slower speed and with different rhythms.

Growth will slow as support from the inventory cycle fades, fiscal stimulus measures come to an end and as private demand suffers from slow credit growth and weak labor markets, the OECD said.

The U.S. economy is estimated to have grown 2.4% in the first quarter and is forecast to grow 2.3% in the second as it continues to outpace euro-zone economies.

The OECD estimates that German gross domestic product contracted at an annualized rate of 0.4% in the first quarter, while the combined GDP of the G-7 rose at an annualized rate of 1.9%.

"We do not see inflation concerns and therefore monetary policy should be moving accordingly."

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The $787 billion stimulus plan and most of the subsequent spending programs have been failures. They failed to spur economic growth enough to raise tax revenues, reduce budget deficits, and destroyed assets, goods, and capital through idle resources and government inefficiencies.

U.S. demand may be a little stronger in the first half of 2010, than projected, from the $8,000 homebuying tax credit and another extension of unemployment benefits. However, this boost may be temporary, and demand may fall again later in the year. The negatives are too much for the positives to facilitate growth much.

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March leading indicators rise; recovery seen continuing
April 19, 2010

The slow economic recovery should continue over the next few months, the Conference Board said Monday.

The index of leading economic indicators rose 1.4% in March, marking 12 consecutive gains.

Going forward, the strength of demand "remains the big question," said Ken Goldstein, economist at the Conference Board.

"Improvement in employment and income will be the key factors in whether consumers push the recovery on a stronger path," Goldstein said.

The coincident index, which measures the current economy, rose 0.1% in March, matching February's rate.

"Payrolls employment made its first substantial contribution to the coincident economic index, suggesting a recovery that is beginning to gain traction," said Ataman Ozyildirim, an economist at the Conference Board.

In March, seven of the 10 leading indicators were positive. However, some of the positive components "look unsustainable," wrote Ian Shepherdson, chief U.S. economist with High Frequency Economics, in a research note.

"We look for a much smaller increase in the index in April," Shepherdson wrote. "The index, in our view, fails to reflect the ongoing disaster in the small business sector, so it is very likely overstating growth substantially. Taken at face value over recent months it suggests the economy is booming. It isn't, and it isn't about to start, either."

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Economists Split Over Inflation
APRIL 16, 2010

On average, the 56 surveyed economists, not all of whom answer every question, expect tame inflation, forecasting consumer prices in December will be just 1.8% above year-earlier levels.

"The Fed doesn't want to start raising rates when you haven't got really solid employment momentum," said economist Kurt Karl of Swiss Re, who doesn't see much risk of inflation amid widespread unemployment.

On average, the economists expect the unemployment rate, currently at 9.7%, to fall to just 9.3% by December while the economy adds around 1.9 million jobs over the next 12 months. The survey found that, on average, the economists expect the U.S. economy to expand at about a 3% annual rate in each of the four quarters of this year, although three-quarters said growth is more likely to be stronger than weaker than their forecast.

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