November Employment Situation

NAROFF ECONOMIC ADVISORS, Inc.
Joel L. Naroff
President and Chief Economist

INDICATOR: November Employment Situation
KEY DATA: Payrolls: 120,000; Private Sector: 140,000; Unemployment Rate: 8.6% (down 0.4 percentage point)

IN A NUTSHELL: “It was nice to see the unemployment rate come down but if we are to see it continue to fall, firms will have to hire a lot more people than they did in November.”

WHAT IT MEANS: The November employment report was another of those good news/bad news releases. On the positive side, the unemployment rate fell sharply to its lowest level since March 2009. That was the teeth of the recession and the rate was racing upwards. Unfortunately, some of the decline came from a large drop in the labor force and that is not a sign of growing confidence that jobs are available. That said, the labor force numbers are fairly volatile so I will withhold judgment. Regardless, this large a decline in the unemployment rate is usually not sustainable unless job gains are being added robustly and that just is not the case. Hiring remains less than hoped for and as usual it was restrained by continued cut backs in the public sector. The construction sector is still shrinking though there have been other indications that activity has improved. Weakness in nondurable goods manufacturing almost completely offset increases in durable goods hiring. We did see the retail, finance, insurance, temporary help, education, health care and restaurant sectors add workers. So far this year, the private sector has added about 1.7 million new positions while the public sector has cut about 260,000 jobs. Earnings were down a touch and that does not bode well for income growth.

MARKETS AND FED POLICY IMPLICATIONS: Private sector additions to payrolls were better than initial expectations but not nearly enough to keep the unemployment rate from continuously declining. Indeed, I would not be surprised if the rate ticks up next month. But I don’t want to be the Grinch that stole the employment report as there is little doubt that the sharp drop in the unemployment rate will be the biggest news in the media. That should lead to some firming in confidence. Also, the solid Black Friday and Cyber Monday sales numbers, combined with improving vehicle sales point to consumers slowly opening their wallets. That is the signal businesses need to start ramping up hiring. Actually, that could be happening already and the data are simply not keeping up. Both the August and September job gain numbers were revised upward by about 100,000 from the original estimates. Over the past three months, the private sector has added an average of about 160,000 workers and that is likely to be revised upward as well. While that pace is not great, it is much better than is commonly perceived. It is also in hailing distance of the rate needed to keep the unemployment rate coming down fairly consistently. But we are not there yet and it will require continued consumer spending and clearing the European financial and coming economic disaster hurdle before that does occur. All said, this is a good report that holds out hope for better things to come but not so great that anyone should think the labor market is healthy and all is well with the world.

RE/MAX Connection Realtors disclaimer:
RE/MAX Connection Realtors are not licensed financial advisors, and are not providing any financial advice, you should consult with a licensed financial advisor prior to making any financial decisions. RE/MAX Connection Realtors are only providing this economic statement from Naroff Economic Advisors, Inc. for informational purposes.
Our company accepts no liability for the content of this email/blog, or for the consequences of any actions taken on the basis of the information provided. Any views or opinions presented in this email/blog are solely those of the author and do not necessarily represent those of the company. Finally, the recipient should check this email and any attachments for the presence of viruses. The company accepts no liability for any damage caused by any virus transmitted by this email.
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October Housing Starts/Weekly Unemployment Claims

NAROFF ECONOMIC ADVISORS, Inc.
Joel L. Naroff
President and Chief Economist

INDICATOR: October Housing Starts/Weekly Unemployment Claims
KEY DATA: Starts: -0.3%; 1-Family: +3.9%; Permits: +0.9%; 1-Family: +5.1%; Unemployment Claims: 388,000

IN A NUTSHELL: “Housing is firming and some improvement may be in the cards, adding to the view that this recovery is becoming broader based.”

WHAT IT MEANS: The housing sector is a long way away from being healthy but maybe it is starting to get strong enough to move out of the ICU to the recovery room. Housing starts eased a touch in October and on the surface that does not look to be anything positive. However, there was a sharp increase in September and the modest decline indicates the sector managed to sustain that upturn. There was a nice increase in single-family activity but that was offset by a larger drop in the volatile multifamily segment. With the demand for rental housing rising, I expect the multifamily component to keep rising going forward – it just may be in fits and starts. Indeed, with permit requests jumping, improving starts numbers should be seen in the November or December data. Builders are quickly taking those permits and turning them into starts as can be seen in the further decline in the permits authorized but not started pace as well as the increase in the homes under construction rate. As for the labor market, there was a nice drop in new claims for unemployment insurance and it wasn’t just a one week wonder. These data can and do bounce around and the more stable four-week moving average fell below the critical 400,000 level, signifying the likelihood of future declines in the unemployment rate.

MARKETS AND FED POLICY IMPLICATIONS: Another day of pretty good numbers. Don’t expect housing to add lots of jobs or power the economic comeback, but it sure looks like it will be adding to growth going forward. Indeed, the Home Builders Associations confidence measure has jumped two consecutive months as developers seem to be seeing clearly improving conditions. Housing has typically been the first stage of the recovery rocket and its failure to ignite has been a key factor in the sluggish expansion. That the sector may finally be adding jobs is a positive sign. When added to the drop in the claims numbers, you can see that economic conditions are moving upward at an accelerating pace. However, and there is always a however, two major roadblocks stand in the way of solid growth: Rising oil prices and European debt issues. While a European collapse would cause the most problems, I believe that is not likely. If we get what most economists believe will be a mild to moderate European recession, the recovery will be slowed but not killed. But with oil above $100 a barrel, the prospects of $4.00 a gallon of gasoline is of major concern. Worse, the combination of a European downturn and high gasoline prices could move us back to where we were in the spring when the economy was making minimal headway. So, while I like what I see in the economic data, I recognize that we are not out of the woods by any means. That is something the Fed members are quite cognizant of and why Mr. Bernanke is so willing to stick his neck out and say he will keep rates low until mid-2013. As for investors, it remains Europe, Europe, Europe and it will stay that way for a long time.
RE/MAX Connection Realtors disclaimer:
RE/MAX Connection Realtors are not licensed financial advisors, and are not providing any financial advice, you should consult with a licensed financial advisor prior to making any financial decisions. RE/MAX Connection Realtors are only providing this economic statement from Naroff Economic Advisors, Inc. for informational purposes.
Our company accepts no liability for the content of this email/blog, or for the consequences of any actions taken on the basis of the information provided. Any views or opinions presented in this email/blog are solely those of the author and do not necessarily represent those of the company. Finally, the recipient should check this email and any attachments for the presence of viruses. The company accepts no liability for any damage caused by any virus transmitted by this email.
RE/MAX Connection Realtors, 1000 East Lincoln Drive, Suite 2, Marlton, NJ 08053 www.goconnectionnj.com

November 2, 2011 FOMC Decision

NAROFF ECONOMIC ADVISORS, Inc.
Joel L. Naroff
President and Chief Economist

November 2, 2011 FOMC Decision

“…economic growth strengthened somewhat in the third quarter, reflecting in part a reversal of the temporary factors that had weighed on growth earlier in the year.”

Rate Decision: Fed funds rate maintained at a range between 0% and 0.25%

The FOMC ended its two-day meeting with a lot of information. The Committee released its usual statement, an updated economic forecast that took us through 2014 and Mr. Bernanke met the press to answer questions. When all was said and done, we discovered that the Fed thought things got a little better in the fall, the outlook for the future was still somewhat bleak and even lower than the June forecast and the Committee, according to Mr. Bernanke, had everything on the table if conditions didn’t improve.

Let’s start with the statement. The only real change came in the description of the economy. Instead of talking about “continued weakness” there was now a reference to a somewhat stronger growth rate. Of course, the members did note that “recent indicators point to continuing weakness in overall labor market conditions, and the unemployment rate remains elevated”, so you can say that the perception is still of an underperforming economy.

The FOMC did not indicate it would do anything in addition to its current “maturity extension” program commonly referred to as “operation twist”. However, during the press conference, Mr. Bernanke made it clear that additional actions would be taken if necessary. That is not likely to occur anytime soon. However, since the outlook is for the unemployment rate to remain elevated through 2014, it would not be a major surprise if there was another round of quantitative easing. I don’t expect that to happen as I believe growth will be decent enough for the Fed to not have to throw another policy against the wall and hope it sticks. Indeed, even with correct policy, long term growth is likely to be in the 2.2% to 3% range, according to the Fed’s latest forecast. That is less than many are hoping for and basically says that happy days are not going to be here for quite some time.

RE/MAX Connection Realtors disclaimer:
RE/MAX Connection Realtors are not licensed financial advisors, and are not providing any financial advice, you should consult with a licensed financial advisor prior to making any financial decisions. RE/MAX Connection Realtors are only providing this economic statement from Naroff Economic Advisors, Inc. for informational purposes.
Our company accepts no liability for the content of this email/blog, or for the consequences of any actions taken on the basis of the information provided. Any views or opinions presented in this email/blog are solely those of the author and do not necessarily represent those of the company. Finally, the recipient should check this email and any attachments for the presence of viruses. The company accepts no liability for any damage caused by any virus transmitted by this email.
RE/MAX Connection Realtors, 1000 East Lincoln Drive, Suite 2, Marlton, NJ 08053 www.goconnectionnj.com

February Employment Report

NAROFF ECONOMIC ADVISORS, Inc.
Joel L. Naroff
President and Chief Economist

INDICATOR: February Employment Report

KEY DATA: Payrolls: 192,000; Private Sector: 222,000; Unemployment

Rate: 8.9% (down 0.1 percentage point)

IN A NUTSHELL: “The labor market may not be great just yet but it is firming and that is good news for job seekers.”

WHAT IT MEANS: Economists always look forward to the employment report release and the wait was worth. The economy added jobs at a very solid pace in February powered by strong private sector hiring. The gains were widespread with manufacturing, services and even construction adding to payrolls. Retail was weak but some of that may have been due to the unseasonal as well as brutal weather in places. Normal early spring activity was likely put off. Firms are looking to temp workers again and that is a sign they are ready to get back into the hiring game. The weak link is the state and local government sector, education in particular. Apparently, the path toward global economic domination is through cuts in the education system. And I always thought education was a fundamental part of the nation’s infrastructure. Silly me. Hours worked increased as did wages, though hardly as fast as inflation. Income may be up but when adjusted for the surges in food, energy and other goods it is likely to be down. The best news in the report was the drop in the unemployment rate, to the lowest level since April 2009. I had been expected it to rise as discouraged workers come back into the workforce. But while the labor force did rise, more jobs were created so the rate went down. Don’t be surprised if we get periodic up ticks in the rate going forward as there are lots of dropouts who are likely to show back up over the next couple of years.

MARKETS AND FED POLICY IMPLICATIONS: This was a very good report that indicates the labor market is coming back. Yes, some of the rise can be ascribed to a rebound from the desultory January increase. Last month’s gain was revised upward but 73,000 is still not a great number. In addition, since a job is a job is a job, the cuts in the public sector have to be replaced before any economy-wide payroll increase can occur so the pressure is even greater on the private sector to hire more robustly. That is a concern as rising energy, food and other goods costs will likely slow growth during the first half of the year. Nevertheless, when you look at the totality of the economic data released this week, it is clear that the Great Recession is becoming a thing of the past. Unfortunately, the Great Recovery is not here and indeed may not happen as long as rising prices, limited credit availability, large numbers of foreclosures and high commercial vacancy rates constrain spending and construction. Those are the factors that seem to dominate Mr. Bernanke’s thinking and why he is so set on keeping rates low and liquidity high “for an extended period”, whatever that means. As for investors, it is oil vs. growth and petroleum may be the slippery slope that greases the wheels of a market correction (Sorry about that).

RE/MAX Connection Realtors disclaimer:
RE/MAX Connection Realtors are not licensed financial advisors, and are not providing any financial advise, you should consult with a licensed financial advisor prior to making any financial decisions. RE/MAX Connection Realtors are only providing this economic statement from Naroff Economic Advisors, Inc. for informational purposes.
Our company accepts no liability for the content of this email/blog, or for the consequences of any actions taken on the basis of the information provided. Any views or opinions presented in this email/blog are solely those of the author and do not necessarily represent those of the company. Finally, the recipient should check this email and any attachments for the presence of viruses. The company accepts no liability for any damage caused by any virus transmitted by this email.
RE/MAX Connection Realtors, 1000 East Lincoln Drive, Suite 2, Marlton, NJ 08053 www.goconnectionnj.com

February Supply Managers’ Non-Manufacturing Survey

NAROFF ECONOMIC ADVISORS, Inc.
Joel L. Naroff
President and Chief Economist
INDICATOR: February Supply Managers’ Non-Manufacturing Survey
KEY DATA: ISM (Non-Manufacturing): 59.7 (up 0.3 pt.); Business Activity: 66.9 (up 2.3 points)
IN A NUTSHELL: “The economy is gaining speed and only an extended period of high energy costs can sidetrack the recovery.”
WHAT IT MEANS: At least through February, the economy was not only in good shape but was also starting to shift into higher gear. The Institute for Supply Management’s survey of service and construction firms showed that conditions are solid and are even getting better. Activity is robust (the index was the second highest on record), orders are growing, though a touch slower than they had been, hiring is picking up steam and order books are filling faster. This is very similar to Tuesday’s report on the manufacturing sector so it looks like the improvement in the recovery is spread across almost all segments of the economy.
MARKETS AND FED POLICY IMPLICATIONS: We are at the points where the economy is no longer recovering but has entered the expansion phase. That is clear from the latest economic data. Not only are the supply managers telling us conditions are good and getting better but even the labor market numbers are improving. Regardless of tomorrow’s employment report, the sharp decline in unemployment claims tells me that the labor market is firming. Layoffs are largely over and if the economy does keep improving, job growth is headed upward. Whether it will or not the coming months will see even stronger growth depends on factors beyond anyone’s control. Energy is that wild card due to the political unrest. The uprising in Libya continues and how it is resolved remains uncertain as to its impact on oil supplies. But Libya is just the latest but it may not be the last of the countries that gets wracked by the desire to overthrow undemocratic governments. Even if the Libyan situation gets resolved in the best way possible tomorrow, the political risk of future changes will not come out of the markets anytime soon. Thus, we should take this report and look forward with lots of hope and expectations but also remember that the 800 pound gorilla, energy, is still looking over our shoulders.

RE/MAX Connection Realtors disclaimer:
RE/MAX Connection Realtors are not licensed financial advisiors, and are not providing any financial advise, you should consult with a licensed financial advisior prior to making any financial decisions. RE/MAX Connection Realtors are only providing this economic statement from Naroff Economic Advisors, Inc. for informational purposes.
Our company accepts no liability for the content of this email/blog, or for the consequences of any actions taken on the basis of the information provided. Any views or opinions presented in this email/blog are solely those of the author and do not necessarily represent those of the company. Finally, the recipient should check this email and any attachments for the presence of viruses. The company accepts no liability for any damage caused by any virus transmitted by this email.
RE/MAX Connection Realtors, 1000 East Lincoln Drive, Suite 2, Marlton, NJ 08053 www.goconnectionnj.com