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“Race” to Recovery: Economic Growth Is a Tortoise, Not a Hare

This is the first in a series of blog entries by Joel Naroff, an economist who serves as an advisor for Susquehanna Bank.

Just when it seemed safe to believe the labor market was firming and job growth was coming back, we were reminded that this recovery is proceeding with fits and starts. Job growth in November was extremely disappointing. The recovery continues onward, but this jobs report seems to say that it hasn’t shifted gears just yet.

The Tortoise and the HareIn reviewing November jobs statistics, surprising declines in retail and manufacturing and continued softness in construction, finance and real estate held back the market. There were some decent payroll increases posted in temporary help, health care and restaurants.  The federal government is adding workers, while state and local governments don’t have that luxury so they are cutting like mad. With wages and hours worked barely budging, it doesn’t look as if income gains will be very good.

As for the rise in the unemployment rate (up 0.2 percentage point to 9.8%), the increase to the highest level since April may not be all that bad. OK, it is not good, but the labor force did increase. That may mean that people are moving back into the workforce and seeking jobs (and are therefore counted in the unemployment rate). The optimistic view is that this is a sign that confidence could be rising.

The weak job numbers fly in the face of stronger data in just about every sector except maybe housing. Early indications are that the holiday shopping season may be better than expected. The Institute for Supply Management said recently that the non-manufacturing portion of the economy remains strong and payrolls are rising faster. Orders, including both imports and exports, are accelerating. Backlogs are building, though a touch slower than they had been. Still, growing demand coupled with building backlogs are likely to lead to more job gains in the future. We saw similar results in the manufacturing sector, where conditions remained quite strong even if growth eased back a touch. I think December’s job numbers could be on the upside and surprise people.

The preponderance of the data point to a recovery that is on track. Yes, we have a tortoise – not a hare – running the race, but the slowpoke will get to the finish line.

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