US: Employment: Recovery in Tow—Income to Follow

Employment continues to evince smaller aggregate declines and some sectors are registering consecutive gains. Meanwhile, hours and wages have started to improve. Consumer income and spending to follow.

Employment: First Stop Digging a Hole

Employment losses continue to get smaller each month as the evidence of economic recovery is improving. November’s job losses of 11,000 are likely overstating the improvement given the impact of comparisons to last November’s huge drop off. Over the last three months job losses averaged just 87,000—much less than earlier this year.
Yet there are two factors that do suggest that the decline further supports our view that the recovery is in tow. First, there was a solid gain in temporary help of 52,000—this sector is often considered a leading indicator. Second, there was continued breadth. Education & health jobs improved again. Meanwhile, job losses were much less in sectors such as retail, trade & transportation, construction and manufacturing. This breadth is an important factor suggesting sustained recovery. In addition, employment in the household survey also increased providing corroborating support for a positive employment outlook.

Longer Workweek and Aggregate Hours Suggest Recovery

The aggregate hours index (middle graph) rose 0.6 points in November, erasing the declines notched over the past three months. The gain was the largest one month increase since July 1997. The rise in hours feeds into many forecasts of economic growth (GDP) suggesting continued recovery. Improvement in aggregate hours reflects, in part, the increase in the average workweek by 0.2 hours to 33.2 hours. The manufacturing workweek increased by 0.3 hours and factory overtime rose. Since May, the manufacturing workweek has increased by a full hour.
Meanwhile, the diffusion indices are up for both private nonfarm and manufacturing sectors. This suggests that the improvement in employment and hours is broadly based thereby giving further support for sustained recovery.

Incomes: Improvement

Our income proxy continues to improve as illustrated by the bottom graph. This turn suggests better consumer spending and a sustained expansion. Income is the product of jobs, hours and wages. As we have seen, job losses have declined steadily over the last six months while hours have now stabilized and actually jumped in the latest month. Meanwhile wages do lag but it appears that average weekly earnings did improve in the latest week.
Our outlook is for sustained economic recovery—we never had a double-dip outlook or an L-shaped or V-shaped recovery. Instead, business and households are gradually rebuilding their balance sheet, controlling expenses and reevaluating their use of credit. As suggested by Chairman Bernanke yesterday, recoveries take more time than we might like.
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