This post is part of a series by Joel Naroff, an economist who serves as an advisor to Susquehanna.
The first reading on economic activity in 2011 was a promising one, showing that the manufacturing sector is really beginning to heat up. The Institute for Supply Management’s manufacturing index rose solidly, driven by a surge in new orders. This was followed by another update report from the Institute, this one based on a survey of managers in non-manufacturing businesses. This showed that the service sector of the economy is growing solidly as well. Demand rose sharply as the new orders index hit its highest level since August 2003. Other reports also reinforce the view of a gradually building economic recovery. Despite the lousy weather – or maybe because of it – major retailers reported solid sales gains for January.
Still, the bottom line is that it’s all about jobs, so let’s take a look at these closely-watched monthly numbers. Payrolls increased by 36,000 in January, with the private sector adding 50,000 jobs. The unemployment rate was 9.0%, down 0.4 percentage point.
Unfortunately, the latest data may have caused many analysts to become cross-eyed. On the one hand, a disappointing number of new positions were added in January. But the details of the payroll portion of the report were really not that bad.
Strong gains were seen in the vehicle, computers and machinery and electronics manufacturing industries. This reinforces the view that businesses are investing strongly and households are beginning to buy big-ticket items again. Retailers added lots of people, and there were increases in health care, wholesalers and professional and business services. However, the brutal winter weather hammered some sectors. There was a huge decline in construction, as well as messengers and couriers. We continue to see the impacts of the financial stress on state and local governments, as a growing number of positions are cut.
For economists, it’s all about payroll growth, and this report didn’t buoy anyone’s hopes. One remaining problem is wages: they are stagnant. Household consumption is being challenged by rising energy and other costs; without larger wage increases, the likelihood of robust growth is reduced.
Still, January’s employment report provided data to fuel an upbeat outlook as well. There was a huge decline in the number of people reporting that they are unemployed, and there were fewer people underemployed as well. While unemployment is still way too high, it has come down dramatically over the past two months, and that could help consumer confidence.