This is a very busy week for economic statistics out of the
major economies but the one statistic that always stands out from the rest at
this time is the US non-farm payroll numbers together with the unemployment
figures. These are announced on the first
Friday of each month and are preceded by the ADP employment change, challenger
jobs cuts, non-farm productivity and unit labour costs on the Wednesday and
Thursday.
The reason for them being regarded as so important is that
they, more than practically anything else, are seen as the bellwether of the US
economy by economists and policy makers there.
As the US remains the largest economy in the world the state of the
economy is very important to the rest of the world. It is said in the UK that if the US sneezes
we (and that could be the rest of the world) catches a cold. As a result markets around the world will
wait anxiously for them to be announced and they will dictate the confidence
and mood of markets in the short term.
The statistics mentioned are all only the headline numbers
but each has been the product of a report in which many more numbers can be
found. These numbers will advise
economists not only whether the US economy is expanding or contracting but
which sectors are contributing the most or least to the over-all performance,
whether the US workforce is expanding or contracting and how many are
contributing to the economy. They supply a measure of the cost effectiveness of
the workforce and whether or not they are contributing to profitable growth.
The ADP employment change numbers are one of the first to be
published. This week we heard that
179,000 people had been added to the US workforce in the private sector only. This compared to 215,000 in April this year
and 163,000 in May last year. Drill down
and, interestingly, 82,000 jobs were created by small (employees less than 50),
61,000 by medium size businesses (between 50 and 199 employees) and 37,000 only
by large companies. That will be
regarded as healthy as it is the growth of small companies that will drive
growth in the economy and provide the large companies of the future. It will, of course, also include those that
have given up looking for a job and turned to self-employment for income. These
are further broken down into various industrial categories and thereby give
guidance as to where the growth is to be found.
Typically construction workers will be one of the first to show growth
as they tend to be laid off more quickly in a downturn and are one of the first
to grow in a recovery.
Non-farm productivity has been reported as -3.2% in the
first quarter of 2014. This compares
with an estimate of -2.7% and the previous quarter’s figure of +2.3%. It is the worst figure since 2008. This poor performance has contributed to an
increase in labour costs of 5.7% in the quarter and is, clearly, a bad sign for
profits from business. The poor
productivity figure came from an increase in hours worked but with a decrease
in output there is less produced per hour worked. The probability is that these first quarter
figures were badly affected by the very cold weather in the US during the
period. Perhaps the hours worked or/and
paid for were spent in clearing snow and travelling to work rather than
producing goods? In that case there should
be a sharp recovery in the figure when the second quarter figures are produced.
These figures will be followed on Thursday by the Challenger
jobs cut report. This keeps track of the
lay-offs announced by industry and gives a picture of the state of the jobs
market. It cannot, however, be used to
make a judgement on what is happening now as it is only reporting on
announcements. Many of the jobs to be
cut will not be lost for several months.
The business’ circumstances may change in the meantime and the jobs
saved or the jobs could be re-allocated or lost through natural wastage such as
employees leaving for their own reasons or retiring. These figures should then only be used to
guide on confidence or to monitor trends in employment.
Finally we reach the all-important non-farm payroll numbers
and unemployment rate. The non-farm
payroll is a compilation of those working in areas other than farmers and those
working in non-profit organisations. So
it is more an indication of the numbers working for business in the production
of goods and services, in manufacturing and in construction. A figure of, in excess of, 200,000 is thought
to be needed to create an environment of growth. That figure should compensate for job losses
through other means such as immigration and retirement. Clearly, a figure well in excess of 200,000
is needed for it to represent strong economic growth and that is why it is
regarded as so important. It gives a
relatively clear picture of the strength of the economy. Care needs to be taken, however, as one
month’s figures can be affected by short term factors so a better guide is the
picture given by the quarterly numbers. A figure of 219,000 is forecast for May
which compares with 288,000 in April.
The unemployment numbers are also regarded as very
important, as they are in any developed economy. This figure is, currently, 6.3% which is a
big improvement on figures twelve month’s ago when they were 7.6%. They do, however, cover some wide disparities
such as the 19.1% of unemployed teenagers or 11.6% for blacks and 7.3% for
Hispanics will indicate. The
unemployment rate is a percentage of those unemployed to those in work which
then hides the fact that those in work only represent a percentage of those
eligible to work. Last month the
participation rate was 62.8% compared with 63.2% in the previous month. This figure is the source of much disquiet in
government and in the Fed where it is seen as a sharp reminder of those that
have been left behind and could be measured as a large increase in spare
capacity.
These figures are all highly important in judging the health
over time of the US economy and should be watched closely by anyone interested
in the economic and political trends.
