Steve Quayle News Alerts

Sept. 4, 2003
By Martin Wolk
MSNBC

Boosted by tax cuts and low interest rates, the economy has gained impressive momentum in recent months, growing even faster than many optimistic projections. But job growth continues to lag badly, and economists expect only modest improvement in employment when monthly figures are reported Friday.

MANY ANALYSTS BELIEVE the economy added jobs last month for the first time since January, while others look for yet another negative report. The unemployment rate is expected to remain unchanged at 6.2 percent. A better-than-expected report could boost the stock market, but nobody believes the economy will go back anytime soon to creating 150,000 jobs a month, the level needed just to absorb new entrants to the work force.

“It’s clear that businesses have stopped cutting, but there is as yet no evidence that they have started to hire,” said Mark Zandi, chief economist at Economy.com, a forecasting firm.

Except for the frustrating lack of new jobs, the economy clearly is moving in the right direction. Retail sales rose in July at their fastest clip in four months, led by auto sales, which surged even higher in August. Businesses have picked up their spending pace too, with orders for non-defense capital goods up at an 18 percent rate over the past three months, according to John Silvia, chief economist for Wachovia.

Silvia now expects gross domestic product, the broadest measure of economic output, to rise by 5.5. percent this quarter, which would be the fastest pace since the peak of the technology bubble in late 1999.

But on the labor front, the picture has been decidedly mixed. Initial claims for unemployment insurance have been hovering around 400,000 a week and went back above that level in the latest report Thursday. Nearly 3.7 million people are collecting unemployment insurance, a figure that has been rising in recent weeks.

The Institute for Supply Management, which produces closely watched business surveys, reported Tuesday that manufacturing is expanding, but only 12 percent of respondents said they were expanding their work force, while 21 percent said they were still cutting jobs.

“So far this is all encouraging and this is all very hopeful, but it will quickly become meaningless unless businesses respond by starting to create some jobs,” Zandi said. “If we don’t get job growth, the economy will fade again.”

Ed McKelvey, senior economist at Goldman Sachs, pointed out that the economy has been expanding for more than 18 months since a relatively mild recession ended in late 2001. “Usually you would have had lots of job growth by this time,” he said.

BY THE NUMBERS - Key economic indicators

Period Latest Prev.
• Consumer Confidence Aug* 81.3 77.0
• Retail sales July* 1.4% 0.9%
• GDP Q2* 3.1% 1.4%
• ISM Index Aug 54.7 51.8
• Factory Orders June* 1.7% 0.3%
• Unemployment Rate July 6.2% 6.4%
• Employment situation July* -44,000 -72,000
• Consumer inflation July 1.5% 1.5%
• Housing starts July* 1,872,000 1,845,000
• Home sales July* 7,285,000 7,030,000

CONSUMER CONFIDENCE

Aug* 81.3
July 77.0
June 83.5
May 83.6
April 81.0
March 61.4
Feb 64.8
Jan 03 78.8
Dec 80.7
Nov 84.9
Oct 79.6
Sept 93.7

What is it?

Consumer confidence is considered important because consumer spending accounts for more than two-thirds of U.S. economic activity. The monthly Conference Board survey is one of the two most closely watched indicators of sentiment. Based on a mail-in survey sent to about 5,000 households. Results are converted to an index and expressed in comparison to the 1985 average of 100.

Source: The Conference

RETAIL SALES

July* 1.4%
June 0.9%
May 0.0%
April -0.3%
March 2.3%
Feb -1.4%
Jan 03 0.4%
Dec 1.4%
Nov 0.8%
Oct 0.1%
Sep -1.7%
Aug 0.6%

What is it?

A broad measure of consumer spending trends. Includes sales of motor vehicles, clothing, food at both grocery stores and restaurants, electronics, building materials drugs and other items. Expressed as a percent change from previous month, adjusted for seasonal variations but not price changes.

Source: Census Bureau

GDPRecent figures

Q2* 3.1%
Q1 2003 1.4%
Q4 1.4%
Q3 4.0%
Q2 1.3%
Q1 2002 5.0%
Q4 2.7%
Q3 -0.3%
Q2 -1.6%
Q1 2001 -0.6%
Q4 1.1%
Q3 0.6%

What is it?

The gross domestic product is the broadest measure of the economy, comprising the value of all goods and services produced in the United States. It is reported quarterly with frequent revisions. Generally expressed as a percentage change from the previous quarter in “real” or inflation-adjusted terms. Economists presume real GDP is capable of growing at an annual rate of about 3.5 percent over the long term. When GDP declines over a sustained period of time the economy is considered to be in recession.

Source: Bureau of Economic Analysis.

ISM INDEX

Aug 54.7
July 51.8
June 49.8
May 49.4
April 45.4
March 46.2
Feb 50.5
Jan 03 53.9
Dec 55.2
Nov 50.5
Oct 49.7
Sep 50.7

What is it?

The first major indicator reported each month, considered a reliable assessment of how the manufacturing sector is performing. Based on a survey of executives done by the Institute for Supply Management, formerly known as the National Association of Purchasing Management. Responses are compiled and reported as an index number. A reading above 50 percent indicates the manufacturing sector is expanding, while a reading below 50 indicates it is shrinking.

Source: Institute for Supply

FACTORY ORDERS

June* 1.7%
May 0.3%
April -3.0%
March 2.1%
Feb -1.0%
Jan 03 1.7%
Dec 0.3%
Nov -0.8%
Oct 1.4%
Sep -2.4%
Aug -0.4%
July 4.4%

What is it?

Data on new orders for manufactured goods, adjusted for seasonal variation, offer a good indicator of the manufacturing sector's health, closely watched because it is the most volatile part of the economy. Expressed as percent change from previous month.

Source: Census Bureau

UNEMPLOYMENT RATE

July 6.2%
June 6.4%
May 6.1%
April 6.0%
March 5.8%
Feb 5.8%
Jan 03 5.7%
Dec 6.0%
Nov 5.9%
Oct 5.8%
Sep 5.7%
Aug 5.8%

What is it?

One of the best known and most politically powerful economic indicators, the rate is calculated from a monthly survey among a sample of about 60,000 households. The rate is adjusted for seasonal variations, but unlike most economic statistics it is never revised.

Source: Bureau of Labor Statistics.

EMPLOYMENT SITUATION

July* -44,000
June -72,000
May -76,000
April -22,000
March -151,000
Feb -121,000
Jan 03 158,000
Dec -211,000
Nov 1,000
Oct 119,000
Sep 65,000
Aug 20,000

What is it?

Represents the month-to-month change in jobs on payrolls of the nation’s business, government and non-profit establishments. Generally considered a more accurate indicator of labor market health than the unemployment rate. Analysts estimate the economy should add about 150,000 jobs monthly to keep up with the nation’s growing work force. Based on a sample of 300,000 establishments employing nearly a third of the nation’s workers, the figure is adjusted for seasonal variations and frequently revised.

Source: Bureau of Labor Statistics

CONSUMER INFLATION

July 1.5%
June 1.5%
May 1.6%
April 1.5%
March 1.7%
Feb 1.7%
Jan 03 1.9%
Dec 1.9%
Nov 2.0%
Oct 2.2%
Sep 2.2%
Aug 2.4%

What is it?
The most widely known and used measure of inflation, the Consumer Price Index is based on the price of a “basket” of goods including food, beverages, fuel, medical care and clothing. Value refers to year-over-year change in "core" prices, excluding volatile food and energy categories.

Source: Bureau of Labor Statistics.

HOUSING STARTS(seasonally adjusted annual rate)

July* 1,872,000
June 1,845,000
May 1,745,000
April 1,627,000
March 1,742,000
Feb 1,640,000
Jan 03 1,828,000
Dec 1,815,000
Nov 1,760,000
Oct 1,653,000
Sep 1,810,000
Aug 1,630,000

What is it?
A good indicator to assess demand for housing and construction industry health. Represents the number of new residential buildings, including single-family and multifamily homes, where construction was started. Expressed as a seasonally adjusted annual rate. Construction was started on 1.7 million new residential structures in 2002, the highest level since 1986.

Source: Census Bureau

HOME SALES(seasonally adjusted annual rate)

July* 7,285,000
June 7,030,000
May 6,958,000
April 6,878,000
March 6,548,000
Feb 6,795,000
Jan 03 7,029,000
Dec 6,973,000
Nov 6,662,000
Oct 6,771,000
Sep 6,496,000
Aug 6,407,000

What is it?
One of the bright spots of the economy in recent years, driven at least in part by historically low mortgage rates. Figure represents the sum of new and existing single-family home sales, expressed as a seasonally adjusted annual rate. In 2002, a record 6.5 million homes were sold.

Sources: National Association of Realtors, Census Bureau

Instead, the economy has continued to lose jobs, including 800,000 since the recession ended. In a paper published last week, economists at the Federal Reserve Bank of New York said that the problem is not so much layoffs as lack of job creation, reflecting a high degree of corporate uncertainty and financial market weakness.

“Companies are working in a revenue-constrained environment, and they feel like they’ve got to get more out of an existing work force,” said McKelvey. And they are succeeding: Productivity rose another 6.8 percent in the second quarter, according to revised figures published Thursday.

But employment also is being held down by structural changes in the economy that first became apparent in the jobless recovery of 1991-92, said the Fed researchers.

In past recessions, the researchers argue, most job losses were temporary furloughs, meaning that employment snapped back quickly when demand rose. The latest period has seen a dramatic rise in the number of industries experiencing so-called structural losses, including telecommunications, electronic equipment, aviation and securities.

“The largely permanent nature of this recession’s job losses could explain why jobs have been so slow to materialize,” said the researchers, Erica L. Groshen and Simon Potter. “An unusually high share of unemployed workers must now find new positions in different firms or industries.”

Some lost jobs may never return

On the other hand normally cyclical industries like housing have held up remarkably well in the current downturn, perhaps reflecting the Fed’s ability to better manage monetary policy by driving down interest rates.

Silvia, of Wachovia, sees signs that the employment market is finally improving, and he said Friday’s report should reflect positive technical factors including returning military reservists and better weather.

But Don Straszheim, who is generally optimistic about the economy, cautions that the economic expansion likely will continue to be relatively modest, offering only modest job growth.

“One of the things that is special (in this recovery) is the increasing competition from abroad, and in particular from China,” said Straszheim, of Straszheim Global Advisors. “I believe the economic issue in America for the rest of this decade is going to be job losses to overseas, and in particular to China.”

He stressed that rising global trade is generally good for the economy, driving down the cost of consumer goods and boosting the standard of living. But he added: “If you lose your job to China, you lose your whole job, and it hurts.”

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