GDP Revisions And Jobs Numbers Add Up To Grim Economic News
The economic statistics aren't pointing in a very optimistic direction.
After tomorrow, there will only be four unemployment reports and two GDP reports (original and first revision for the 2nd Quarter) between now and Election Day. When we entered 2012, there were some hopeful signs that things were actually turning around. After all, economic growth at the end of 2011 was fairly strong, although it was ultimately revised downward and economic growth for all of last year was a pathetically weak 1.7%. At the same time, there were signs of improvement in the jobs market in the final two months of last year, as well as the beginning of this year. As we’ve seen happen before, though, a round of oddly positive economic news in the winter has turned into something far more disappointing in the spring. Last month, for example, we learned that the Gross Domestic Product in the 1st Quarter of 2012 grew at a disappointingly weak 2.0%, a report that was followed up at the beginning of this month with a rather disappointing jobs report.
Now, it appears, things might actually been a little worse than when we looked at them a month ago. This morning, the Commerce Department issued a revision for First Quarter GDP and, rather than going up as analysts had expected, it went down:
The U.S. economy grew more slowly in the first quarter than previously estimated, reflecting smaller gains in inventories and bigger government cutbacks. Gross domestic product climbed at a 1.9 percent annual rate from January through March, down from a 2.2 percent prior estimate, revised Commerce Department figures showed today in Washington. The report also showed corporate profits rose at the slowest pace in more than three years and smaller wage gains at the end of 2011.
Consumer spending at retailers and car dealerships kept the economy moving forward last quarter just as businesses investment cooled, showing why the economy needs to generate bigger job gains to sustain the expansion. The threat of a slump in Europe adds to concerns the U.S. recovery will struggle to gain speed.
“The consumer showed some good results in the first quarter, but going forward, the outlook is one of steady albeit unspectacular gains,” said Richard DeKaser, deputy chief economist at Parthenon Group LLC in Boston, who correctly forecast the revision. “The phrase that best describes our economy is ‘muddling along.'”
For those looking for good news, if not in the numbers then at least from those analyzing them, its worth noting that most analysts still see the economy growing steadily, albeit slowly, for the remainder of the year:
Economists at Morgan Stanley in New York are among those projecting growth will pick up this quarter. The economy will grow at a 2.4 percent annual rate, according to their latest tracking estimate, as gains in housing and consumer spending climbs help offset slowdowns in business investment.
Federal Reserve Bank of New York President William C. Dudley said the U.S. expansion will probably continue at a “moderate” pace and that additional stimulus likely won’t be needed unless the economy falters.
“As long as the U.S. economy continues to grow sufficiently fast to cut into the nation’s unused economic resources at a meaningful pace, I think the benefits from further action are unlikely to exceed the costs,” Dudley said yesterday.
Of course, there are also signs on the international front that the worldwide economy may be slowing down significantly, an event that the American economy would find it hard to avoid. In addition to the ongoing Eurozone crisis, Europe itself appears to be contracting. In China, there are signs that the years of rapid economic growth may be coming to an end. And, just today, reports indicated that the Indian economy is also slowing down. So, even if we don’t get pulled into a recession, the odds seem fairly good that economic growth will be sluggish at best for the foreseeable future.
In addition to the disappointing GDP figures, there’s a host of other news out today on the jobs front that suggests that tomorrow’s release of the May unemployment figures from the Department of Labor is going to be disappointing to say the least. For starters, payroll processing giant ADP reported that private employers had added 133,000 jobs in May, below the consensus estimates before the release:
Companies in the U.S. added fewer workers than forecast in May, a reminder the job market will take time to strengthen, a private report based on payrolls showed.
The 133,000 increase in employment followed a revised 113,000 gain the prior month that was smaller than initially estimated, Roseland, New Jersey-based ADP Employer Services said today. The median estimate of 39 economists surveyed by Bloomberg News called for a May advance of 150,000.
Businesses may be wary of adding workers until they see more evidence of a pickup inconsumer spending, while Europe struggles with recession. A Labor Department report due tomorrow may show that private payrolls rose by 160,000 in May, and unemployment held at 8.1 percent, economists projected.
“Businesses are adding workers at a pace that is not very impressive,” said David Sloan, a senior economist at 4Cast Inc. in New York, who projected a gain of 135,000 for the ADP report. “The unemployment rate is not going to fall rapidly. The numbers are consistent with an economy that is growing modestly.”
The Labor Department, meanwhile, reported that initial claims for unemployment last week rose 10,000 to 383,000, and revised it’s figures for last week upward by 3,000. This comes after several months in which the initial claims number was moving consistently downward, and more importantly away from the 400,000 figure that it had been at or above for several years since the recession started. Perhaps most foreboding on the employment front, though, is the report from Challenger, Gray & Christmas that suggests that the month of May saw a huge increase in planned layoffs, albeit in limited sectors of the economy:
Job cuts jumped by 53 percent in May from April in the United States, with Hewlett-Packard’s layoffs propelling the computer industry to the top spot among the biggest job cutters this year, a report by consultancy firm Challenger, Gray & Christmas showed on Thursday.
Employers announced plans to cut 61,887 staff from their payrolls in May, 67 percent more than in the same month of last year. The figure represents the most job cuts since last September.
The computer industry dominated job cuts this month, with 27,754 layoffs, of which 27,000 were at Hewlett-Packard. Year to date, the computer industry announced 32,599 job cuts, followed by the transportation sector with 24,193 and the consumer products sector, with 21,846, the report showed.
“We may see more job cuts from the computer sector in the months ahead,” John A. Challenger, CEO of Challenger, Gray & Christmas, said in a statement.
“While consumers and businesses are spending more on technology, the spending appears to favor a handful of companies. Those that are struggling to keep up with the rapidly changing trends and consumer tastes are shuffling workers to new projects or laying them off, altogether,” Challenger added.
Another area to watch is the food industry, where job cuts are up 75 percent this year and where Hostess Brands – markers of Twinkies and Wonder Bread – filed for Chapter 11 bankruptcy protection, the report said.
Given the short-term trends at the very least, it seems unlikely that tomorrow’s unemployment numbers will meet the expectation of roughly 155,000 jobs created in May. In fact, it seems more likely that it’s more likely that the number will fall far short of that, although we’ll find out about that tomorrow morning.
The ultimate question, of course, is what the political impact of all of this will be. Obviously, it would be to President Obama’s advantage for economic growth to be on the positive side of current estimates and for job growth to get back to the numbers it was at earlier in the year. Of course, we’re at the point now where that is largely out of his control and that any action that was taken today would be unlikely to have a significant economic impact over the next five months. As Heather Digby Party notes, it may well be too late for the economy to save Obama:
[I]t’s getting late, and even if the economy were to dramatically improve in the next few months I doubt very seriously that anyone is going to be persuaded or change his or her vote because of it. This has been a painful slog and people have seen too many “green shoots” that turned brown to have any trust in numbers at this point.
Indeed, the numbers on the bellwether right track/wrong track poll are still decidedly negative, and they are unlikely to change significantly between now and November. Barack Obama may yet win this election, indeed I’d still say the smart money is on that, but he’s not going to be able to do it by telling people how much better he’s made things. All of which suggests were in for a long, tough, and negative campaign.