Recent unemployment data released by the Labor Department continues to indicate the economy is adding 200,000 jobs per month. This has been the case for the last three months. What is interesting about the continued job growth figures is the GDP growth rate is suggesting a much lower rate of job additions. A recent article in the Wall Street Journal, Piecing Together the Job-Picture Puzzle ($), notes the level of job improvement over the last year would indicate the economy is growing at a 4-5% pace. This projection is based on a study by Arthur Okun and is known as Okun's Law. The Fed has opined on Okun's Law and the relationship between output and unemployment. Mish's Global Economic Trend Analysis site highlights a comment from Madeline Schnapp, Director of Macroeconomic Research at TrimTabs Investment Research:
"Something about the U.S. economy isn't adding up.
At 8.3%, the unemployment rate has fallen 0.7 percentage point from a year earlier and is down 1.7 percentage points from a peak of 10% in October 2009. Many other measures of the job market are improving. Companies have expanded payrolls by more than 200,000 a month for the past three months, according to Labor Department data. And the number of people filing claims for government unemployment benefits has fallen.
Yet the economy is barely growing. Many economists in the past few weeks have again reduced their estimates of growth. The economy by many estimates is on track to grow at an annual rate of less than 2% in the first three months of 2012. The economy expanded just 1.7% last year. And since the final months of 2009, when unemployment peaked, the economy has expanded at a pretty paltry 2.5% annual rate.
How can an economy that is growing so slowly produce such big declines in unemployment?
TrimTabs thinks the problem lies in the heavily massaged BLS employment data and the highly suspect BEA personal income data.
That said, withholding tax data is also messy and not a perfect measure either, but no matter what I do with the data, I can't get to 200,000+ jobs unless a huge percentage of the workforce is suddenly working for McDonalds."
Recently, a number of consumer sentiment releases have turned negative. Last week's University of Michigan consumer sentiment index fell to 74.3 versus 75.3 in the prior month. Expectations were for an increase to 76. Additionally, the IBD/TIPP Economic Optimism Index declined to 47.5 versus 49.4 in February. This decline was the the index's first since August of last year. Readings below 50 indicate consumer pessimism. Both sentiment reports highlight gasoline prices as a prime contributor to the weaker sentiment figures.
|From The Blog of HORAN Capital Advisors|
TechnoMetrica's (TIPP) president, Raghavan Mayur, notes, "There is a basic disconnect between the media and the American public," he said, adding that coverage of the jobs picture has been too positive. "It's like there are two realities in this country. The report noted that 87.2% of those survey in the poll expect gas prices to top $4 over the next three months and 37.1 expect gas prices to reach over $5. It should be noted that all three of the components of the index worsened. The three components consist of:
- The Six-Month Economic Outlook: a measure of how consumers feel about the economy’s prospects in the next six months.
- The Personal Financial Outlook: a measure of how Americans feel about their own finances in the next six months.
- Confidence in Federal Economic Policies: a proprietary IBD/TIPP measure of views on how government economic policies are working.
There certainly seems to be a disconnect from much of the reported economic data versus consumer/business sentiment.