Jobs, Cars and Houses: Where is the Real Economy?

  • For the second straight month, the gains to payroll jobs were disappointing as the April employment report showed an increase of just 115,000 jobs, after the now-revised March increase of 154,000. The better news in the April jobs report came from the unemployment rate which decreased slightly to 8.1 percent. The step down from the December-through-February average monthly payroll job gain of 252,000 jobs begs a huge question for the U.S. economy. Are we seeing temporary turbulence or has there been a fundamental downshift in economic momentum beginning late in the first quarter of 2012? If we see another month or two of sub-150,000 net jobs it will be hard to argue against the numbers and expectations for the remainder of this year will need to be dialed down. 
  • However, there remains broad evidence that moderate job gains will be sustained. Two broad surveys of overall economic activity both point to ongoing gains to hiring. The Institute of Supply Management’s Manufacturing and Non-Manufacturing reports both show improving business conditions. The ISM’s manufacturing survey increased to 54.8 in April, well above the neutral 50.0 mark. The employment sub-index of the ISM-MF report increased in April to a very strong 57.3, indicating ongoing job gains in the manufacturing sector. The ISM’s non-manufacturing survey for April showed that the service sector is still expanding with a reading of 53.5. The employment sub-index for nonmanufacturing firms remains healthy at 54.2. The Job Openings and Labor Turnover Survey (JOLTS) data for March showed that the rate of job openings for March continued its upward trend, hitting 2.7 per 1,000 employees. Likewise, the hiring rate is still improving while the separations rate has stayed flat over the last two years. Also, initial claims for unemployment insurance, which had elevated around the Easter holiday, dropped significantly, by 27,000, for the week ending April 28.  Another supportive data point can be found in the first quarter productivity numbers. Nonfarm productivity decreased at a 0.5 percent annual rate in the first quarter of 2012, in what looks like a normal cyclical downshift in productivity (following huge gains in 2009 as businesses slashed their payrolls). At this point in the business cycle firms need more labor to keep generating more output.
  • More evidence of a broadening economic expansion comes from auto sales which have averaged a 14.6 million unit pace for the three months ending in April, and in housing markets which are looking a little firmer in many parts of the country. Residential construction, new and existing homes sales and home prices all point to a near-term bottoming of the great real estate market collapse.

Attached is the complete Comerica Bank U.S. Economic Update for May 2012: USEconomicUpdate0512.

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