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.
I think this Economic Dashboard puts things in better perspective.
Of course not. Because going from the meltdown/brink of depression we were in when he took office, to the tepid growth we are having now is “grim”.
(“What does the dashboard tell me? It tells you if the economy is returning to more typical behavior. The dashboard is a snapshot of current conditions in the market relative to their typical-long term ranges.”)
If only we weren’t pursuing the Libertarian wet-dream of shrinking Government.
It appears Libertarians wish for GRIM, DOOM, and GLOOM.
Why, I’m not sure.
http://www.epi.org/publication/public-sector-job-losses-unprecedented-drag/
Oh well, as soon as Romney is elected and Republicans return to their Keynesian ways we should be right back to tremendous boom we enjoyed under Bush…when the GDP grew at a staggering 2.2% instead of the lowly 2% Doug laments above, and the economy added an incredible 7,000 Private Sector jobs a month instead of the growth we have been seeing…115,000 last month for instance.
The politicians can’t say it if they want to get elected but the economy is never going to be the way it was. The World economy is terminal and all the technicians and politicians are doing are doing is applying bandages. The 30 or even 70 dollar a bbl oil is all gone. Oil is declining now but that is because the economy is declining as well. The floor is probably somewhere between 80 and 90 dollars a bbl because below that the new sources are not economic. Then there is the financial system which is one black swan away from collapse. Trillions of dollars of public and private debt that will never be re-payed. Everyone was talking about JPM’s 2 billion dollar trading loss but very little talk about the 100 billion dollars of bad paper they are sitting on.
I’m not disappointed in Obama’s economic performance because I never thought for a minute that he would be able to fix it.
@john personna: I especially like the disclaimer on their comments section:
Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data, ability to repeat discredited memes, and lack of respect for scientific knowledge. Also, be sure to create straw men and argue against things I have neither said nor even implied. Any irrelevancies you can mention will also be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.
Funny too that Meg Whitman and HP are slashing jobs…I thought these Republican Business-People had job growth in their DNA.
@ Norm…
I guess Whitman is atypical for Republicans in that she is interested in maximizing profit and not creating jobs…like Romney was at Bain for instance.
@Hey Norm:
We are at a really strange point. As the dust has settled more and more economists have ended up in a Krugman-esque position. This, despite Krugman being the bete noir for the libertarians and the right for the first years of the crisis.
We stand in an aggregate demand hole, and as we noted earlier, the right just starts to acknowledge that with claims that defense spending is necessary for the economy, or taxes can’t be raised at this moment.
Really strangely though, many of them like to revel in our troubles. As if, for the truly foolish, they aren’t our troubles at all. They are just Obama’s.
Never mind the role the libertarians and right had, in those early years, shaping American response to the housing and debt crisis.
@Hey Norm:
Want to hear something really painful?
President Obama does not have to tell the people “how much” things has gotten better. He only need to tell them that things have gotten better and with a little help rather than obstruction, things could have and can be a whole lot better. Face it Doug – the jobs number, albeit weak, are steadily positive numbers that are the lingering affect of a 2009 stimulus bill that everyone agree (hindsight being 20/20) should have been bigger.
With no support of government intervention to add more jobs you’ll get what we have today. Contrary to GOP popular belief, the quote above demonstrates that decreased taxes will not result in business hiring. Demand equals hired workers, and new jobs equals demand. Just one of President Obama’s jobs bill would have put hundreds of thousands of people directly to work rebuilding our infrastucture. The house republicans rejected it under the bullsht guise that we did not need anymore government spending.
Obama has a legitimate arguement for his campaigne. How effective he gets it out is the proper issue.
“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”
You know, I dropped a Gallup study yesterday:
Basically the GOP (and fellow travelers) expects people to forget all that, and just pretend (as they can pretend) that this is Obama’s economy.
They can block legislation, crash the recovery, and then say “it’s not us!”
Are voters that dumb?
@john personna:
“Are voter that dumb?”
Unfortunately, yes!!! Its why Obama has to push this message effectively. There are way too many uninformed voters out there…
@john personna:
I don’t think so, but that’s not as relevant as you may think–at least, not in my “armchair analyst” opinion. It’s not a question of smart vs. dumb–it’s that many of them aren’t paying attention yet, and probably won’t be until after the summer. So the Republican behavior on the debt ceiling debate will be old news, and not really considered in the voters’ decisions, unless it gets repeated much closer to the election.
In addition to that, the incumbent always gets credit or blame for the state of the economy, even if much of it is beyond his control or due to the opposition’s obstruction.
For Obama to win, things don’t have to be “fixed,” but it would certainly help if they were headed in the right direction, rather than being flat as we seem to see today.
No, it’s not. The party is over. We’re in for a period of low or no growth, which might not be a bad thing if people adjust their expectations accordingly.
@LaMont, @Mikey:
Well, it would be an unfortunate lesson if one party can purposefully oppose economic growth, and then profit from it later.
Related: Jamie Dimon And The Fall Of Nations
@Fiona:
I could agree with this sentiment if their were nothing for the government to invest in. However, in my opinion the reality is that the country’s infrastructure has to be maintained. Education, which is one the the leading indicators of future economical growth, has to be given a higher priority by our law makers. And if anyone took the investing in clean energy serious, it could be an economical boom in and of itself.
@john personna: Good article John: What most people fail to recognize or admit is that to big to fail is also to big and complex to manage. JPM is certainly an example of that.
Fiona,
The only reason we are in slow growth is because the Government is shrinking.
Every other recession has counted on increasing the size of Government to help push the recovery along. Reagan, Bush 41, the Bush 43 Recession, and the Bush 43 Contraction. Every single one grew the Government and the debt.
We are doing the opposite now…largly because of Republicans who would prefer the country to go downhill to the prospect of losing their place at the Government teat. In additon Government spending is flat under Obama instead of increasing wildly. Obama has increased the debt 50%. Reagan increased it 300%.
John Boehner…21 years in the House. He isn’t concerned about the economy. He’s only concerned with his job.
Mitch “Turtle Face” McConnell…26 years in office.
Eric Cantor…11 years in office.
These guys all voted for the Bush tax cuts…the biggest driver of the deficit today and going forward. Yet now, faced with a recesion unlike any before…refuse to act in any positive way.
They are treasonous if you ask me.
@Hey Norm:
It may be part of the problem but certainly not the “only” reason. High fuel prices play a much bigger part. With oil around $90 a bbl 2% growth is the best we can expect . Anything above $110 and growth will go negative. If oil drops below $80 the new sources become uneconomical and people will stop producing resulting in shortages. This is the new norm.
@ Ron…
OK…only was a stupid choice of words.
One of the majorist reasons we are in slow growth…
Take a look at this graphic. If we were growing the Public Sector like Republicans did the conversation would be totally different today.
But we are not. We are pursuing one of the most stupid economic courses possible.
http://www.nytimes.com/interactive/2012/05/04/business/economy/off-the-charts-shrinking-government.html?ref=economy
We had a debt crisis. As that other link from yesterday showed, it is central to the downward pressure:
This time with emphasis added.
Certainly government should run a deficit in that condition, and this is not a time for balanced budgets. The hard question should always have been how big a deficit, and with spending centered where?
(I think education and energy are vital fields, but I suspect that like defense they could benefit from cuts and restructuring. The money tap has actually been open there for a while.)
I’m concerned. VERY concerned. The excuse machine is clearly in danger of overheating. Get me a good quality high temp lubricating oil…….NOW !!!
@Drew:
Haven’t you in the past talked about the credit crisis and debt contraction?
If I remember correctly, you named personal debt as the core issue.