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How Good Will It Be?

The economy is indeed getting stronger – and is probably setting itself up for the best holiday season since the big downturn in six years.  That’s a strong statement to make five years after the collapse of Lehman Brothers in September 2008 which set off the worst recession and second slowest recovery since the Great Depression.  But there is every reason to believe that 2013 is indeed going to be the year that everything turned around – and by mid 2014 we will have recovered all the jobs lost since the downturn started.

It gets easier for everyone with time

It gets easier for everyone with time

The good news starts with Wall Street, where the DJIA is up 14% for the year (and a remarkable 4% since May, posting good gains through the normally quiet summer).  It’s fueled by record corporate profits which, despite uncertainty, are making investors giddy.  In a typical recession it takes six months for profits to turn into jobs, but a small delay from the usual can be expected given how long the road has been.  But it’s far from automatic.

Corporate America is calling ...

Corporate America is calling …

Enter a survey by Duke University which shows that the largest companies plan to expand their payroll by an average of 1.8% over the next year.  Given that about half the jobs are at companies of 500 employees or more, this would translate into a net gain for big companies of 100k per month.  Since they have only been averaging 40k per month, according to the ADP Employment Report, we could see an additional 60k jobs per month created.

That would pull the total gains over 240k per month or a net increase of 20% over the just under 190k we’ve seen so far.  Even if you simply apply that 1.8% across the board we can see 210k per month.  Either way, we can expect rapid job growth over the next year.

That fits perfectly with the latest unemployment figures, which showed a net loss of only 290k last week.  Granted, this might have some statistical problems given problems with (unnamed) states, but that figure has never been below 300k per week for six years.  Again, 2007, the year before the plunge, is our benchmark.  We might hit it.

Unemployment Initial Claims, or the rate of job loss, since 2006 (from the St Louis Federal Reserve)

Unemployment Initial Claims, or the rate of job loss, since 2006 (from the St Louis Federal Reserve)

Consumer confidence is also at a new high, likely because people are working more than ever and are hearing success stories among their family and friends.  The Chapman Index suggests more people are positive than negative about the economy for the first time since 2007, although the Conference Board number is still at a more reticent 81.5 – still a record since 2007.  All the signs are pointing up right as we head into the holiday season.

It’s impossible to know just how good the holiday season will be and how much competition among retailers will eat into their profits. It’s been a long six years and everyone’s a bit hungry.  But a strong wave of hiring is likely and people clearly feel better than they have in a long time.

Building the foundation is always the slow and nasty part

Building the foundation is always the slow and nasty part

While Barataria has been watching its own economic indicators to make the case, it is clear that the strong foundation laid in 2012 is turning into solid gains for 2013.  A lot of ground is being made up.  If we did see 240k jobs created every month, the net 2M deficit since the peak of employment in 2008 will be made up by April of next year.  That will be an important turning point.

What’s most remarkable about the economic performance we have seen and can expect is that it is confounding the politics of both parties in turns.   Democrats fully expected that the sequester would shave a lot of growth off of the economy, but it’s remained strong enough that we really can’t see that anything did happen.  Republicans expect that hiring will slow, or at least convert to part-time, as the Obamacare deadline approaches, but large companies are not responding in that way at all.  Whatever your reason to be pessimistic, you’re on the wrong side of the data.

Naturally, there are always risks and a big war in the Middle East or a major financial panic would throw this all into chaos.  But the consumer economy, built on people making a decent living and spending some of it to enjoy their life, is starting to return to the US.  It’s nowhere near as strong as we expected back in 2007, but it’s definitely better than we feared in 2010.

How good will the end of 2013 be?  If the holiday season turns up from past years we can expect that we’ll be at or close to a point where we are back where we started before the last official recession started.  That will be enough to make everyone much more giddy than they have been in a long time.  And it looks like it will happen.

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14 thoughts on “How Good Will It Be?

  1. Are you kidding me?@^$* The jobs lost will be replace by three part-time jobs for every ten lost. The jobs are not coming back. There has been NO recovery. The only reason the market is levitating is due to the Fed’s QE. The real unemployment rate is @ 23%……. And you still believe in the left/right paradigm. good luck!

    • OK – let’s count up the ways you are wrong. We covered the part-time job myth a short time ago. It’s not a “recovery”, it’s a “restructuring”, which is a very different thing. QE, I’ll give you. And no, the real unemployment rate is 13.7% (U6) as we discussed. And no, I have no time for left/right. Sorry, but if you’re going to presume things about me you might want to do a wee bit of research.

  2. There’s Mr Sunshine! You haven’t written like this in a while. I hope you are right and can see where you get it from. But while people are more optimistic then they have been in a long time I don’t know that they ready for a big christmas yet. I suppose we will see. But it does take jobs before people are going to have money to spend and if there are more jobs I can see there will be more money. But I don’t expect any miracles.

    • Ha! I am taking a stand, the tea leaves point to a good holiday season and I’ll go with that. It does seem a bit premature, yes, but there is every reason to believe this will happen. The jobs are coming back, if still slowly. What matters is if they peak above 200k gained per month, which was about as good as it got in 2006. We’re still waiting to hit that level reliably (though we did get it for a while in 2011).

  3. Good luck. I admire your optimism but I don’t see it. I realize the numbers are saying blah, blah but I don’t see people ready to spend even if they do have a little extra cash.

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