An Economic Winter Solstice

As I write this, the Winter Solstice for 2009 has come and gone. That means the shortest day of the year has just occurred or said another way, the longest night. But tomorrow the days start to get longer minute by minute. And that is how I feel about the economy. There have been subtle signs for about six weeks now that the economic solstice occurred and improvements are becoming more frequent. We are still a long way from an economic summer, but when each day is a little better than the one before, the psyche at least feels less stressed.

I gathered some optimistic views I’ve started to notice and pulled out the stats I thought were relevant. One caveat: I feel like the recovery will be very much moderate in 2010, but the foundation will be built for a long run standard of living improvement.

Jobs Are on the Way!
Second, when demand begins to pick up, businesses prod existing workers to work harder. Which is why we’ve just witnessed the fastest two-quarter productivity surge since 1961.

Third, when growth persists, bosses give part-time workers more hours or bring on temporary workers. In November, the economy added 52,000 temporary jobs, the largest addition since 2004, and retail hiring for the Christmas season is up 37 percent this year.

The Census Bureau is hiring 1.2 million people in preparation for the 2010 census.

The big rap on the stimulus—it wouldn’t happen fast enough—may turn out to be one of its virtues. Since it was passed in February 2009, only $237.6 billion (30 percent) of the $787 billion package has entered the economy

A growing global economy and the weak dollar point to a second source of support for job growth: exports. Exports fell from $164 billion in July 2008 to $122 billion in April 2009, but they’ve risen every month since then, to $137 billion in October. On Dec. 4, Boeing and Korean Air announced an order for five 747-8 Intercontinental jetliners totaling $1.5 billion.

Five years ago, Google had about 2,300 employees. Today, it has about 20,000. Did any seer envision that in December 2004? Economists can’t forecast what will happen in five months, let alone five years.

The Case for Optimism on the Economy

During the first half of this year, the investment component of GDP declined at a stunning 38% annual rate. Since the investment share of GDP was then about 14%, this implosion accounted for minus 5.4 percentage points of GDP growth. But since overall GDP declined “only” 3.6% in those two quarters, the rest of GDP (the 86%) actually rose. It was a small but real reason for optimism in a stormy sea.

Then came the third quarter. Like a woozy prizefighter lifting himself off the canvas, the battered investment component of GDP managed to rise (at an 11% annual rate), which added 1.3 points to GDP growth rather than subtracting 5.4 points. That 6.7 point swing was the start of the slingshot effect, which is not yet over.

Investment has three components: business investment, inventory stocking, and homebuilding. Inventory stocks were still declining at near-record rates in the third quarter; they simply must level off within a few quarters because sales are rising and firms will not want to deplete their stocks indefinitely. Business investment remains 20% below its 2008 peak; its likely course is up, not down, because plants and equipment wear out. And housing? Well, you know. Homebuilding is still in the doldrums—limping along at less than half the level of 1960. The only way to go is up.

True, the average personal saving rate has risen to 4.5% of disposable income so far this year from 2.7% in 2008. That’s higher, but a long way from the 8%-10% saving rates the doomsayers have foreseen. A saving rate near 5% is consistent with 3%-4% GDP growth in 2010.

The last two quarters were even more extreme: Productivity in the nonfarm business sector grew at a shocking 8.1% annual rate. There are two possible explanations. One: The last two quarters were among the most technologically innovative and entrepreneurial in the history of the United States. Two: Fearful businesses pared payrolls to the bone. If the second is closer to the truth, payrolls are extraordinarily lean right now. Which means that firms will need to hire more workers as their sales and production grow. Which means that employment may start growing sooner than the pessimists think.

The unemployment rate is falling!

The national unemployment rate improved to 10% last month as joblessness fell in 36 states and the District of Columbia, according to the Labor Department’s survey on state unemployment. The rate rose in eight states and held steady in six.

In a normal economy, Vitner said about 100,000 people enter the workforce each month. As the economy recovers from the worst downturn since the Great Depression, that number could double each month for at least a year, he said.

That would mean that more than 2 million jobs would have to be created over the year just to keep the unemployment rate from rising.

Labor Data Show Surge in Hiring of Temp Workers

Last month 52,000 temps were added, greater than the number of new workers in any other category. Not even health care and government, stalwarts through the long recession, did better.

More raises, smaller pay increases in 2010

An estimated 14% of employers will freeze salaries across the board in 2010, down from 30% in 2009, according to a survey released Monday by consulting and outsourcing firm Mercer.

Of the organizations that plan to give raises next year, the average base pay increase is projected to be a paltry 2.7%, down from 3.2% in 2009, and even lower than what was predicted earlier this year. In April, a Mercer survey projected pay raises in 2010 to be 2.9%.

Mercer’s 2009/2010 US Compensation Planning Survey Update was conducted in November and includes responses from more than 350 mid-size and large organizations in the United States. 

Working Thoughts 12/21/08
Strange Decision by the NY Times

Working Thoughts 12/21/07
Consumer Spending Rises


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