Slow Dancing

Our economic recovery has, in the opinion of most economists, become self-sustaining, but remarkably slow relative to former recoveries. Job growth has been a primary drag and remains exceptionally slow to recover. Ben Bernanke, during the first-ever press conference following a Federal Open Market Committee meeting said “the labor market is improving gradually. We would like to make sure that that is sustainable. The longer it goes on, the more confident we are.” Economic growth slowed to 1.8% in the first quarter, following at 3.1% rate in the fourth quarter of 2010.

US payrolls increased by 244,000 workers in April, the biggest gain since May 2010. Employment excluding government jobs jumped the most in five years according to Bloomberg. However with more workers joining the workforce, the jobless rate rose from 8.5% to 9%, the first increase since November. The underemployment rate, which includes part-time workers who’d prefer a full-time position and people who want work but have given up looking, rose to 15.9% from 15.7%.

Layoff announcements as reported by the Challenger Job-cut Report are at very low levels, in line with rising production needs at factories, pointing to rising demand for new employees. Layoff intentions totaled 36,490 in April vs. 41,528 in March and 38,326 in April a year ago. Monster’s measurement of online-recruiting volume jumped 12 points in April to 145. Gains are wide including strong acceleration in labor demand from the mining, retail and construction industries according to Bloomberg. ADP’s report went the other direction, showing a slowing in private payroll growth.

The dollar surged yesterday handing oil and commodity prices their first significant retreat in a month. The rise in the dollar comes as investors worry that increasing basic material, food, and energy prices are hurting businesses and placing excessive pressures on consumers’ budgets. Another spark came when European Central Bank President Jean-Claude Trichet failed to invoke the word “vigilance” indicating interest rate increases might not be forthcoming there. Suddenly the Euro’s ascending value was brought into question.

The supply disruptions from Japan and higher basic materials prices are beginning to show up in manufacturing. While still strong, rates of growth for new orders and production slowed in April according to the ISM. Positively, hiring and back orders (possible Japan related) improved substantially. Manufacturing continues to pull more than its weight in this recovery. April was the 21st consecutive month of growth for factory activity. And it’s likely to continue as the weak dollar continues to drive international demand for goods produced by US manufacturers.

Unfortunately, along with the slow growth of the first quarter, productivity slowed. Nonfarm business productivity rose an annualized 1.6% in the first quarter after advancing 2.9% in the previous quarter. Year-on-year, productivity was up 1.3% in the first quarter, down from 2.0% in the fourth quarter.

Hours worked increased an annualized 1.4% after a 1.5% rise in the fourth quarter. Unit labor costs worsened to a 1.0% increase from a 1.0% decline in the fourth quarter. The bottom line is, firms have little incentive to hire until domestic demand strengthens.

Rising gas and food prices have taken a toll on consumer confidence. The Bloomberg Consumer Comfort Index declined to minus 46.2 in the week ended May 1 from minus 45.1 the prior period. According to Bloomberg, last week’s drop reflects deterioration in two of its three components. The buying climate index decreased to minus 56, the second-lowest level since January 2010, from minus 51.8 the prior week. A gauge of Americans’ views of the economy at minus 75.8 was down from minus 74.3 the prior week. The personal finances gauge was minus 6.9 last week, near the prior week’s minus 9.2 reading that was the lowest in two months.

Slow dancing with the wrong partner is no fun at all. At the extreme it can be dangerous. Consider our Princess Recovery. At the ball she must dance with a number of dignitaries, however indecorous:

  • There’s the deeply depressed and potentially angry tyrant Unemployment. He’s the worst kind of bore.
  • Then there’s the Baron of Housing. He was quite the dandy a few years ago, but what a mess he is now. He can’t put one foot in front of the other.
  • How about Sir Spendthrift, the host of our dance? How much longer can he afford to host these lavish balls? He’s a real drag anyway, always talking about how great he is.
  • Oh and how about the Duke of Gas? Well . . . you know.
  • No dance would be complete without the Royal Triplets; Princes House, Senate, and Executive. They are inseparable, but they can’t agree on anything important lately.
  • Look over there in the corner and you can see the Esquire of Regulation and the Exchequer of Taxation peeking around the curtain. They seem to be plotting the ruin of the ball. Those two are as welcome at a party as a porcupine in a life raft.
  • Perhaps the most sinister of all, is the shifty master of disguise, Count Inflation. He’s are real creep that one.

I sure hope our knights Sir Innovation and Sir Productivity can get to the orchestra in time to liven up this place and treat a Princess the way she should be treated. Is it too much to hope that the Fabulous Risk Takers will capture the dance floor and put on a show that will really get this place rocking?

Have a ball this weekend.