Employment Inches Forward, Factory Production Rises

1. Jobs Numbers. Total nonfarm payrolls rose 155,000 for December, according to the Bureau of Labor Statistics. The two previous months were revised a net 14,000 higher. The unemployment rate for the last month of the year stood at 7.8 percent.

 

2. Economic Message. While definitely not stellar, this is an "OK" jobs report. There was a modest amount of job formation plus some additional contributors to income. The fact that payrolls increased and the workweek expanded indicates companies are running lean, but they have work to do. That's not a "recessionary" situation.

 

3. ISM numbers, part 1. The Institute for Supply Management reported this week that its summary Purchasing Manages' Index (PMI) increased 1.2 points higher, for a December reading of 50.7. According to the ISM, a reading above 50 would typically be associated with an expansion of the manufacturing sector.

 

4. Improved, not good. The new orders component of the ISM survey, at 50.3, went unchanged. The survey reading suggests that new orders, the lifeblood of future production, was virtually unchanged in December. Furthermore, the backlog of orders component, at 48.5, indicates a small contraction of the orders book (but not as fast as was indicated).

 

5. International situation. Export component = 51.5, up 4.5 points; Import component = 51.5, up 3.5 points. This suggests a small rise of both imports and exports, but the basic message jives with other news on the international economy: as the year 2012 came to an end, there was some stabilization of the world economy.

 

6. Main message. Factory output is inching ahead. The indication for December was that there was no major breakout of production to the upside, or breakdown of production to the downside. A modest upturn appears to be forming in China, and now with new leaders in place, the economy's momentum could and should improve. The health of the Chinese manufacturing sector will be a crucial determinant of raw material prices.

 

7. The numbers, part 2. Construction spending for November dipped 0.3 percent (y/y = +7.7 percent). What little strength there was in November was concentrated in private residential expenditures: +0.4 percent (y/y = +19.0 percent). Private nonresidential spending on structures contracted moderately: -0.7 percent (y/y = +8.2 percent). Total public construction spending shrank 0.4 percent (y/y = -2.6 percent).

 

8. Perspective. The economy generated 1.8M jobs in calendar 2012.

 

This is almost identical to 2011. It compares to 2.1M payroll gains in 2004 (the first year after the drag of the second Iraq War), and 2.5M in 2005. The first full year following the 1973-75 recession saw employment growth of 2.4M, and after the 1981-82 recession, jobs rose by 3.5M.

 

9. Crucial Issue for 2013. A personal tax increase well more than $100B for 2013 is already a done deal. Given this cut to disposable income, what will consumers do? Will they "pay" for it out of personal savings, or will they cut spending? The fate of the economy hangs in the balance. n