The Superbowl is behind us, as are the depths of Winter. In many ways the year really starts now that January is behind us and the plans for the year are set. As we have come to expect since the real depth of the latest downturn, January 2010, there is good news always tempered with not so great news.
Jobs are growing, yes, but the shock was the downturn in GDP growth in 4Q12 – a 0.1% annualized loss. Most analysts who didn’t see this coming (your humble writer included) expect this was due to uncertainty in Washington, a result that sounds like a cheap excuse. But it’s all we have given that there really is no reason to expect that things are continuing to slowly, ever so slowly, improve.
The ADP jobs report showed a solid gain of 192k jobs in January, 115k of them coming from small businesses (less than 12 employees). The official Department of Labor report was a bit less optimistic at 157k jobs and a small bump up in the headline unemployment rate to 7.9%. Given that so many jobs come from small biz it’s no wonder that the traditional survey method is having trouble keeping track. November and December job estimates were revised upward, as they have been lately, to be much closer to the ADP number.
As usual, we’ll stick with the ADP jobs report – it’s proven much more accurate over the long haul. And that does look not too bad.
So what caused the downturn in GDP? Somewhere between Hurricane Sandy and anxiety over the Federal government deal we have a set of cheap excuses, all of which seem plausible. But the fundamentals are still there for a solid 2013, including manufacturing optimism and an uptick in business investment. As always through this recovery, there is reason for optimism but a dark shadow lurking in the back.
What kind of dark shadows? Remember that the Barataria stat to watch this year is not just unemployment but unemployment among 20-24 year olds, which has been running at least 6 points higher than the overall rate since 2008. It’s at 14.2%, a solid 1 in 7 people, 6.3% higher than the overall – and a sharp uptick in January didn’t help that. We can’t expect real improvement in unemployment until unskilled workers, measured as the young, start to find their first jobs. Here is the graph starting from January 2010, the unemployment peak, overall unemployment in blue and 20-24 year old in red:
The other thing to watch is corporate profits, which are definitely up and fueling a spectacular rise in the stock market. The DJIA is nearing its all-time high of 14,164 set in 2007. Investor confidence is back, and that implies more risk is going to be taken. That translates to investment and jobs, meaning that for all the trouble in the rest of the developed world the US is back in business. That jobs are being created by small businesses only underpins how strong the base is for a good 2013.
That brings us naturally to the big outstanding problem, the one that most of us blame for the downtick in GDP growth – unstable politics. The House Republicans decided to not go to the wall over the debt ceiling and are negotiating a real budget in earnest. The signs are good, but confidence is still very low.
So here we are, at the real start of the year, and the data is starting to come in on 2013. Much of it looks good but nothing looks really fantastic. What remains to be defined is what the new economy is going to look like as we continue to march ahead toward a solid turnaround by 2017.
Perhaps the worst of Winter is behind us, just as the worst of the downturn may be as well. That doesn’t mean it’s not still freezing out there, both in temperature and the cold realities of finding work – especially a first job. Spring is not here yet, but we can dream of it as the days get just a bit warmer.