EMPLOYMENT SITUATION
The December employment report showed a continuation of the past few months trend as payroll employment rose 103,000 and the household survey showed a gain of 297,000. The
unemployment rate fell to 9.4%, but almost half of the drop was due to a 260,000 drop in the labor force.
The gains in payroll employment reflected a 113,000 gain in private jobs and a 10,000 fall in government employment. Now that the census employment distortions have moved out of the data it is now showing the fundamental trends as both of the changes were near the averages of 2010.
Although the employment gains were weak by historic standards, they are about the same as in the 1990s jobless recovery and moderately stronger than in the 2000s jobless recovery.
Average weekly hours for nonsupervisory rebounded to 33.6 hours, the same as two months ago. As with the employment data, the hours worked data is strong compared to the last two jobless recoveries but weak by historic norms.
The one positive item in the report was the rebound in weekly wages and the first signs that average hourly earnings growth could be bottoming.
The payroll/ employment ratio remains about the same as it has been for a year. The employment data shows that the massive excess capacity created in the great recession has not improved. This is in sharp contrast to the manufacturing capacity utilization data where capacity utilization has rebounded about half way back to the last peak. This difference suggest that significant capacity problems could emerged well before the economy returns to full employment. For example, in the ISM survey the deliveries index has rebounded from 45 two years ago to 55 now. The previous cyclical peak for deliveries was 61 in 2005. The deliveries index is a very good leading-concurrent indicator of bond yields and inflation.
The employment release reported that the employment diffusion index rebounded to 60.0 in December and this may be a leading indicator of improved employment. But I prefer to watch the three month diffusion index and it is not improving.
Thank-you for your presentation on the employment situation. I’m confused in trying to understand your first graph on the unemployment rate. You say the unemployment rate is 9.4% but your graph shows something closer to 5 to 6% for Jan-11. I’m confused. What am I missing?
I think you are not reading the chart corretly. It shows a 9.4% unemployment rate.
In the employment/population ratio graph, you assume a rising linear trend. Why? You get a much better fit with a trend line that shows the ratio peaking in March 2000 and declining sharply since. http://www.realitybase.org/storage/macroeconomics/Employment%20population%20ratio%20for%2020%20plus%20101206.png?__SQUARESPACE_CACHEVERSION=1291679882324 Wouldn’t it take an implausible job creation scenario for us to get back up to the linear trend line? Remember boomers start turning 65 this year.
spencer – “The employment data shows that the massive excess capacity created in the great recession has not improved. This is in sharp contrast to the manufacturing capacity utilization data where capacity utilization has rebounded about half way back to the last peak. This difference suggest that significant capacity problems could emerged well before the economy returns to full employment.”
Are you saying that you expect there to be a manufacturing capacity shortfall problem? If so, what is the basis for such a projection?
MG you must have missed the post I did on capacity utilization a couple of weeks ago.
http://www.angrybearblog.com/2010/12/capacity-utilization.html
Roger, you may be right about the linear trend, but I would have problems with the sharp drop in the trend line you suggest.
spencer,
I read that main post and I provided a number of comments.
That doesn’t answer my question. I’ll ask it again:
Are you saying that you expect there to be a manufacturing capacity shortfall problem? If so, what is the basis for such a projection?
Roger –
You link is dead. Is this the post you wanted to link?
http://www.realitybase.org/journal/2010/12/6/us-job-creation-has-been-declining-since-april-2000-and-is-n.html
Oh – the validity of the linear trned line is to show how far off of it we’ve fallen – just the the optput gap in a GDP chart.
Cheers!
JzB
Cheers!
JzB
Roger –
Your link is dead. Is this the post you wanted to link?
http://www.realitybase.org/journal/2010/12/6/us-job-creation-has-been-declining-since-april-2000-and-is-n.html
Oh – the validity of the linear trned line is to show how far off of it we’ve fallen – just like the ouptput gap in a GDP chart.
Cheers!
JzB
Strange. I tested the link to the image only, and it works for me. The link you provided goes to the post in which the image appeared. Thanks for that–and for the comment.
Roger:
I agree with your analysis and using a non-linear methodology (Cubic) to fit the line to the data. At the same time, Jazz has suggested Spencer is showing how far from the trend the Labor Force growth has fallen from the trend
Clearly, both the linear and polynomial trend lines show something pretty dramatic has happened. Here’s why I think it may make a rhetorical difference. I think people tend to see a trend line as something we expect to get back to–reversion to mean. In that way of thinking, the Great Recession is just a bigger excursion from the mean. Maybe we need USG policy changes, or maybe we don’t, but sooner or later, we’ll get back on the trend line–always have, always will, or so the argument goes.
On the other hand, if the trend is now down and all we succeed in doing with Keynesian stimulus or self-correction is to get back to the downward trend line, we still have a continuing train wreck. I’m thinking that the usual tools for managing business cycles are inadequate to reverse such a long-term adverse trend because the type of unemployment is neither frictional, cyclical, nor structural (in the sense linked to NAIRU). Somebody I read recently tried to dub our current problem “institutional” unemployment, a term that doesn’t resonate in my ear, but it makes the point that we need another set of remedies if this is not just a deeper than usual business cycle.
Your thoughts?
MG, boy you are really obtuse.
spencer,
It’s a straightforward question. And you haven’t answered it.
Run75441: If you have a link to the Calculated Risk projection, I’d love to read it, especially if it seems to be supported by plausible assumptions. I need to snort some optimism.
Your unemployment chart across the bottom left to right reads Jan-77 which should read 1967. As you go across everything is reading incorrectly. You have Jan-09, Jan-13, Jan-17, etc. The chart across the bottom should read from about 1967 until 2010 or 2011. Source: Bureau of labor Statistics, Current Population Survey. Noboby is perfect, including me, of course. Have a good day and keep up your good work!
MG,
If a recent KPMG global poll of manufacturers is correct, I doubt capacity constraints will emerge.
Why? many companies are tightening up their supply chains, reducing the number previously relied on/used and – to greater extent – forming partnerships [becoming more concentrated and centralized].
Seems that many may be left out in the cold, not shuttered but operating as marginally higher cost, socially unecessary [i.e., lower than avg productivity] units.
The most discernable way that companies are strengthening supply chains is by developing closer, longer-term relationships with a select group of suppliers. For example, 41 percent of respondents expect to move toward longer-term contracts, …
At the same time, 39 percent of respondents overall foresee fewer suppliers – the second leading change they expect. These reductions can be dramatic: Leggett & Platt, an American diversified manufacturer, for example, has reduced its suppliers from 60,000 to 17,000 overall in recent years…
http://www.nam.org/~/media/1544345C0A1C4D1EBDDCB208B09F051B/KPMG_Glb_Mftg_2010.pdf
juan,
That’s a good poll.
I agree that manufacturing capacity constraints are unlikely to be a problem. I have visited six manufacturing plants recently and none of the plant managers cited that issue as a potential future problem, nor did they express any concerns about excess floor capacity. Senior management didn’t appear worried about excess capacity; many of these plants have the capability for flexible production.
spencer’s statement makes no sense to me, but his immature arrogance in not providing a further explanation doesn’t say much for his working knowledge on that matter. If he foolishly provided that snotty answer in a major corporation briefing, he would escorted from the conference room in any of the Fortune 500s. They don’t put up with crap.
Last week, I listened to an interview with a labor economist. He was of the opinion that full employment probably wouldn’t be achieved until well past this decade. If this economist is correct, full employment is not an issue in terms of crowding out plant utilization any time in near future. Moreover, building replacement cycles aren’t that long, so adding further capacity as needed shouldn’t be a problem as upgrades and replacements are undertaken.
Personally, I see no shortage of available plant facilities or floor capacity in existing plants nor do I believe that production ramp ups will cause any operating problems. I have been briefed on some of the upscaling plans at some plants. No concerns were expressed. I believe that most U.S.-based manufacturers have everything well in hand including future automation plans.
juan,
That’s a good poll.
I agree that manufacturing capacity constraints are unlikely to be a problem. I have visited six manufacturing plants recently and none of the plant managers cited that issue as a potential future problem, nor did they express any concerns about excess floor capacity. Senior management didn’t appear worried about excess capacity; many of these plants have the capability for flexible production.
spencer’s statement makes no sense to me, but his immature arrogance in not providing a further explanation doesn’t say much for his working knowledge on that matter. If he foolishly provided that snotty answer in a major corporation briefing, he would escorted from the conference room in any of the Fortune 500s. They don’t put up with crap.
Last week, I listened to an interview with a labor economist. He was of the opinion that full employment probably wouldn’t be achieved until well past this decade (well past 2020). If this economist is correct, full employment is not an issue in terms of crowding out plant utilization any time in near future. Moreover, building replacement cycles aren’t that long, so adding further capacity as needed shouldn’t be a problem as upgrades and replacements are undertaken.
Personally, I see no shortage of available plant facilities or floor capacity in existing plants nor do I believe that production ramp ups will cause any major operating problems. I have been briefed on upscaling plans at some plants. No concerns were expressed. I believe that most U.S.-based manufacturers have everything well in hand including future automation plans.
Juan:
“has reduced its suppliers from 60,000 to 17,000 overall in recent years.”
Who has that many suppliers realistically?
Manufacturers of MOSFETs, transistors, etc. have capacity constraints. Through the last quarter of 2009, all of 2010, and going into 2011; capacity constraints exist on either the FAB or the Package side of manufacturing. Increased sales dollars is not indictative of more Mosfets being sold. We have experienced increased pricing due to capacity constraints.
http://www.isuppli.com/Manufacturing-and-Pricing/MarketWatch/Pages/Discrete-Component-Pricing-Set-to-Decline-in-First-Half-2011.aspx
Juan identified the corporation. Apparently, you don’t know much about Leggett & Platt and its diversified global corporate holdings and production of goods.
run,
Juan identified the corporation. Apparently, you don’t know much about Leggett & Platt and its diversified global corporate holdings and production of goods.
Mg:
Go back to your office and grab the Wall Street Journal and read. It has all the knowledge you expound upon here. You nevered worked on the shop floor or in Materials or Production planning or Purchasing have you? NO company has 60,000 production suppliers or even 16,000. At Yazaki North Anerica and running a $200 million distribution center, I dealt with suppliers in the hundreds which was too many. I also worked at Motorola Inc. Leggett is so huge composed to either. Donit be silly office boy.
run,
You’re pretending to be a know-it-all again…for all global industries. Just more of your usual chest-beating nonsense. It’s hilarious.
You have no idea how many suppliers most global corporations use or maintain in their procurement sourcing databases.
As an example, you have no idea how many procurement sources automobile OEMs are using or issuing RFBs for their total production needs. You’re comments on this matter are laughable.
Instead of calling the representative of Leggett & Platt a liar, you could stop your phony chest-beating routine and back up your pretend to know claiim. It’s clear that you know very little about Leggett & Platt and its diversified global corporate holdings and production of goods.
You know nothing of my manufacturing, procurement, and consulting backgrounds.
You’re just pretending to know everything. LOL.
Who has that many suppliers realistically?
that’s kpmg’s number and yes, seems large … not sure what type of supply chain mgt l & p shifted to and what is included, nevertheless, a fair number of subsids
http://www.faqs.org/sec-filings/100225/LEGGETT-and-PLATT-INC_10-K/dex21.htm
This all started out so well…
True. LOL.