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Popular Economics Weekly

The Labor Department’s employment report was much better than the headline, which showed 36,000 payroll jobs lost. This was mostly due to a drop in construction employment from the severe winter. But it also showed signs of an incipient spring thaw. Private service-producing jobs actually increased by 42,000, mainly in education and health care, and temporary help jobs continued to rise—up another 48,000.

Jobs are coming back, in other words, but unevenly. The unemployment rate seems to have topped out, and is at 9.7 percent for the second consecutive month.

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The question is what are employers waiting for? Retail sales are showing a 2 percent growth rate month-to-month—and are up 4.7 percent in a year.  Consumers have increased overall spending, including for motor vehicles.

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A big surprise was the rise in consumer debt, a sure sign of increased consumer purchases. Consumer credit broke a record cycle of decline in January, rising $5.0 billion and led by a $6.6 billion rise in non-revolving credit (car loans, mobile homes, education, boats, trailers, vacations). But revolving credit (credit cards) still declined, down $1.7 billion but much less than December’s $9.4 billion plunge. Today’s news is good but consumer reluctance and/or inability to borrow on their credit cards is still a sign of economic distress.

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Housing is in the January blahs, with pending, new, and existing-home sales down due to seasonal factors. Sales are bound to improve with the spring sales season, however. Prices should also improve after a year-end slowdown. The Case-Shiller 20-City Home Price Index is actually increasing when seasonally adjusted.

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The seasonally adjusted 20-city composite rose 0.3 percent in January, equaling the rise the month before.  This version of Case-Shiller has increased in six of the last seven months (September 2009 was flat).  But recent numbers are much softer than those seen during last summer when even seasonally adjusted prices were rising in the 1 percent vicinity. This is per Econoday.

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Much of what happens in 2010 will depend on the consumer. Indeed, the consumer’s mood is still downbeat, reflecting a jobs market that is not improving and income growth that is stagnant.  The Conference Board’s consumer confidence index fell back sharply in February, dropping nearly 10 points to 46.0.  This is the lowest level since the 40.8 reading for April 2009 but is still above the recession low of 25.3 seen in February 2009. Expectations, the index’s leading component, fell more than 13 points last month to 63.8 reflecting a sweeping sentiment downturn in income, employment, and business conditions.  

The view for current conditions is even worse as this index dipped nearly 6 points to an abysmal 19.4 and the lowest reading since 17.5 set in February 1983. Weakness is clearly tied to pessimism over the jobs market. Only 6.2 percent of the survey sample describes job prospects as good. A miniscule 3.6 percent describes jobs as currently plentiful with 47.7 percent calling them as hard to get.

Yet consumer confidence is notoriously fickle. Barron’s Gene Epstein pointed out in a recent column that consumer confidence tanked during the earlier part of past recoveries. It fell 16 percent in the summer of 1992, for example, yet “We now know that in the third and fourth quarters of ‘92, real GDP growth accelerated to a healthy annual rate of 4.2 and 4.3 percent, respectively, accompanied by a steady rise in consumer spending and a steady fall in the unemployment rate..

So the February jobs report may actually be a sign of better things to come.

Harlan Green © 2010