How is that recovery going for you? Overall, the first quarter of 2013 has been a decent one. Nothing is moving very quickly, but we are seeing progress. It’s time to check back on the predictions Barataria made for the year and see how we are doing.
Back at the start of the year, it seemed as if the recovery had something to prove. 2012 was not a bad year, but it was only the foundation of a recovery. A little bit of faith that things were getting better certainly had a lot to do with Obama winning re-election, among other things. But 2013 is indeed shaping up to be the year the recovery starts to seem real.
Why is the recovery running so slowly? Just as this is not a normal postwar “recession”, we cannot expect a normal “recovery”. So far, it’s been anything but. Think of this as the application of the scientific method – a hypothesis is presented and the expected results necessary to prove it were devised.
If that’s too dull, it’s the end of the first quarter and we should look back on the call we made before the game started. Hey, if weathermen and sportscasters are supposed to predict what will happen, why don’t we insist on the same from economic reporters?
Here are the measurements that were outlined at the start of the year and how they are doing 3 months into the year:
Predictions: Accelerating job growth, reduced gap between youth & overall unemployment.
Results: Job growth up 29% over 2012, Youth unemployment falling faster than overall.
Employment growth has been the highlight of the 2013, just as it was last year. But the gain of 548k jobs (by the ADP report) is accelerating, now at a rate of nearly 2.2M per year versus 1.7M. However, almost half of those jobs (266k) were gained at companies of less than 50 employees – corporate hiring has not picked up substantially.
The important figure to watch is still jobs for the young. As the headline unemployment rate fell from 13.7% to 13.3%, unemployment for 20-24 year olds fell more, from 14.2% to 13.3% – and the gap between the two fell from 6.3% to 5.7%. The peak of that gap was 7.1% in 2010. That implies that more inexperienced people right out of school are finally finding jobs , and perhaps companies are not just looking for immediate experience but are willing to make a long-term investment in employees.
Prediction: Normalizing in the 60-70 range.
Result: Not holding up!
Consumer confidence is a fudgy number, a “How ya doin’?” kind of survey strained through a formula. Anything above 50 is considered a good sign. In 2012 this was soaring up as high as 80 before settling down into the 60 range. The prediction was that this would stay stable through 2013 as the economy slowly improved – steady improvement without a lot of acceleration.
This didn’t hold up so well. In March, the index fell to 59.7, just out of the range that we were hoping for. The decline so far is not steep, but it suggests that the rate of improvement will slow down through the year, at least in consumer spending. That’s not what we predicted, but it’s not totally busted yet.
Prediction: Remaining high.
Result: Continuing increase, but uncertain future?
This is important because hiring won’t pick up at big companies until profits do – and they are confident that profits will continue. Hiring is at least in part an investment in the future, and stockholders have to be satisfied today before any company can make plans for tomorrow. Profits are very high for many companies – in the 14% net return range, far higher than what is typical. It’s a hugely positive sign that is pushing stocks higher, the S&P500 up 5.5% for the year even after recent slides.
There are two problems, however. Financials are lagging as their profits disappoint, showing once again that high-risk trading is not impressing anyone anymore. And profits have been so good that no one expects them to last, especially if interest rates rise later in the year. This is worth watching closely – especially if we don’t see an uptick in hiring at big companies.
Prediction: Continue rising.
Result: Only January data is in, but so far so good.
The Case-Shiller index of real estate in 20 cities has only published numbers for January 2013, but that showed an increase of 8.1% year over year with 2012. More immediate data shows that new housing starts jumped dramatically in March, up 7%. That’s good news for both real estate and employment. We will have to wait to see how this goes.
With our 4 figures to watch, the results so far are 2-1-1 at the end of the first quarter. There is time to pull out a more solid win on all of them. 2013 is going pretty well so far.