ADP may foreshadow disappointing May jobs number on Friday; growth slowing

This morning, the stock market took a beating after ADP reported a weak 135,000 gain in private payrolls last month. April’s numbers were also revised lowerto a gain of 113,000 from 119,000.

That doesn’t bode well for the Labor Department report on jobs, due this Friday, writes Jack Ablin, chief investment officer, BMO Private Bank. In an email, Ablin elaborates:

Economists are forecasting an expansion of 178,000 net new private payroll positions in May.  Based on a cozy historical relationship between ADP and the Bureau of Labor Statistics’ private payrolls, a simple regression would imply a disappointing net gain of only 139,000 jobs.

Here’s a graph showing the relationship between the two numbers. Doesn’t look good:

Image

Overall, job growth appears to be slowing (graphic via MarketWatch)

Job growth slowing in 2013.

Job growth slowing in 2013.

The best place to find out what is really happening in jobs

The core of the labor force is weakening; baby boomers are working longer – via Calculated Risk

Whenever I want the inside skinny on the jobs numbers, I turn to the Calculated Risk blog. No one can beat Bill McBride for his clear, steady tone (even when it felt as if the world was ending) or for his command of the numbers.  And the charts are to die for.

The labor force numbers released last Friday for March were surprisingly weak — only 88,000 new jobs were added to the nonfarm payrolls, less than half the number predicted. The unemployment number edged down to 7.6%, but only because so many people gave up looking for work.

The participation rate in the labor force has been a major topic of debate over the past few years. Baby boomers are retiring, which would naturally reduce what is known as the participation rate in the labor force. There are other factors of well — both bad and not so bad.

Let me share with you what Bill McBride sees:

  • Fewer 16- to 24-year-olds are in the labor force because they are going to school more. That’ should be a plus for the economy.
  • The number of 25- to 54-year-olds is declining — a negative. Those are the prime working and saving years. The downtrend is a function of the recession and structural changes in the economy. (See chart on left; click on the graphic to enlarge.)
  • More oldsters are working longer (some say so they can keep their health benefits). But there aren’t enough of this cohort hanging in to boost the overall participation rate.

For more details, go read the Calculated Rate blog post here. Eye opening.

The new desperation: homebuilders, the economy and the Poconos

Honey, I told you to bring the coupon with you!

The ‘new normal’ for investors may be morphing into the new desperation for just about everyone and everything else.

Today, the Census Bureau reported that just 30,000 homes sold last month  — the weakest June in history. On a seasonally adjusted annualized basis, June set the second lowest rate in nearly 50 years of record-keeping at 330,000. May holds the record for the lowest at 267,000.

It’s hard to believe that things are getting worse in housing; much of 2009 was so miserable. For a while, thanks to the tax credit for homebuyers, the residential market began to turn up from its lows. The tax credit expired at the end of April, so some are arguing/hoping that the dip is only temporary. Before you know it, buyers will re-emerge and help nudge along the recovery. Maybe. But I suspect my recent experience in the Pocono Mountains in northeastern Pennsylvania is a harbinger of more trouble ahead.

The region is an inexpensive vacation haven for residents in the Northeast and MidAtlantic states. We were there for the second year in a row for a weekend of R&R and to visit my older son in sleepaway camp. Last year, the weak housing market shouted from every corner and every publication. “Reduced!” home sale signs were everywhere. The 2009 edition of the Pocono Real Estate Guide promised every manner of discounts. “BETTER VALUES!” screamed one ad which promised buyers they would “SAVE $12,000”  — $6,000 in closing costs to be paid by the builder and $6,000 in LUXURY UPGRADES. I wasn’t too surprised.

This year, I found the changes a bit of a shock.  The July 2010 edition seemed even more desperate. “Bring In This Ad/Get $5,000 In Free Upgrades!” The biggest coupon I had ever clipped in my life was for $5.00.

Builders are even offering to fill the shoes of Uncle Sam. Missed out on the tax credit for homebuyers?  “Every qualified buyer gets our summer $8,000 bonus!” announces another ad.

The guide itself is flimsier — newsprint only. Last year’s edition  had a glossy cover and only a photo of an elegant looking bedroom. This year’s has a borderline shlock quality: Get your bargains while they last. Only 3.5% down. “Ask for Leon. See Our Ad Inside!” Yeah, I’ll ask for Leon.

Also new this year: Two prominent half-page ads offering foreclosures. “Call for list.”  In other words, there’s more where that came from.

Last year the economy seemed weak, but not desperate. Demand for vacation accommodations of all sorts seemed pretty strong.  It made sense to me. The Poconos are pretty downscale compared to Nantucket or the Hamptons. For years they were the butt of jokes,  a low-class getaway for honeymooners who had a taste for heart-shaped whirlpools and mirrored ceilings. But it’s also a lovely area for families with verdant mountains, lakes galore, the Delaware River gap and the amusements of small town life. Both last year and this year we stayed in simple cottages on a private lake. To our surprise, this year the season was far from booked. In fact, the owners told us that families kept calling to say they wouldn’t be showing up after all. They had lost their jobs. These were people who reserved a year in advance and who typically return year, after year, after year.

The effects of cancellations like these are rippling through the four main counties in the Poconos. The jobless rate in June is up year-over-year, rising to 11.2% in Carbon from 10.0%;  to 10.4% from 9.3% in both Monroe and Pike; to 7.8% from 7.2% in Wayne, the only counting besting the national jobless rate of 9.5%.

You’ll probably read that the June home sale numbers mark a big improvement when compared to May, up 23.5%. True. And that the inventory of new homes fell. Also true. But consider this: June home sales are still 16.7% below the 2009 June number. So is this a new bottom or new trouble? I don’t know. But I couldn’t help noticing that in both 2009 and 2010, the inside front cover of the Pocono Real Estate Guide featured families, both with two young kids, obviously chomping at the bit to move into a home framed nearby — a 4-bedroom house with vaulted ceilings and central heat and a/c. But the families today are different. The house remains the same — down to the trees in front. Which made me wonder: What happened to last year’s family? Did they move? Did they default? What other options did they have?

Retail sales jump as fear factor for the employed ebbs

Weekly jobless claims edge up as retail sales rise (clcik to enlarge)

Weekly jobless claims edge up as retail sales rise (clcik to enlarge)

Retail sales numbers for January came out today and were surprisingly strong. Here are few things to think about in reviewing the numbers:

First, anyone who hasn’t lost a job over the past two years is probably feeling that they aren’t going to lose their jobs. The fear factor in the economy is ebbing, so those with jobs are spending a bit more.

Second, the retail numbers are unlikely to signal much good news for the unemployed — at least not for a long while. Calculated Risk notes that the four-week running average for weekly unemployment claims is rising, with the average now 28,000 above the January low:  “Both the level of claims, and the recent increase in the 4-week average, are concerning and suggest continued job losses.”

And finally, I can’t help but wondering when and whether these numbers will translate into higher tax receipts for states. So far, retail sales numbers and tax receipts aren’t in sync. Gotta keep an eye on that. The numbers, for example, don’t take into account store closings.

Here’s the top of the  Wall Street Journal story on January retail sales; click on the link at the bottom for the full story:

Retailers continued their comeback last month, with long-suffering categories like department stores and apparel retailers showing signs that consumers are returning.

January same-store sales rose 3.3%, according to the 29 publicly traded retailers tracked by Thomson Reuters. The monthly gain, the strongest since April 2008, exceeded projections for a 2.5% advance at stores open at least a year and followed a 2.9% rise in December.”I think we're seeing that customers came out after Christmas and stayed out,” said Janet Hoffman, global managing director for retail at consulting firm Accenture. “Retailers are doing a significantly better job at managing inventory. So the markdown frenzy we saw last year didn't occur,” which will help profit, she said.

via Retailers Gather Strength as Sales Rise 3.3% – WSJ.com.

Graphic from Calculated Risk

Winners & losers in the recession: A graphic guide

Several things jump out at me in studying the Wall Street Journal’s excellent graphic on job losses since the beginning of the current recession:

  • The auto industry, before the recession began, accounted for just 0.7% of the national economy and has dipped to 0.5%. On a percentage basis that’s huge —  nearly 29%.
  • Next in line for big job losses, construction, accounts for a much bigger swathe of the economy, currently 4.7% vs 5.2% at the start of the recession, a 13% drop.
  • Education, health, and to a lesser degree, government, picked up jobs during the recession. In his blog, the NYTimes’ Floyd Norris notes that for the first time in a decade, the private sector has failed to grow.
  • Mining and logging industries were expanding for most of the recession, but are losing jobs now, something to keep an eye on. Demand for commodities is an important sign for a real recovery.

how the recession reshaped job market