We recently launched the US Employment Monitor – a selection of 14 variables that allow for a more complete analysis of US labour market conditions.
The outlook for the US economy is, currently, highly dependent on employment growth. Simply stated, if the US can keep adding 100 000 to 200 000 new jobs a month, then it should be able to continue to recover and achieve a 1.75% to 2.75% GDP growth rate. If job growth falls below 100 000 on a regular basis, then we would expect the growth rate to slow to below 1.5%, and potentially close to 0.75%. If the US started to lose jobs again, then the economy would be heading back into recession.
As would be expected, world equity markets also appear highly sensitive to US labour market developments.
Over the past 12 months, the US has added an average of 163 00 jobs a month and is currently forecast to grow at just over 2% in 2012. During the Great Recession the US economy shed a total of 8.78 million jobs. It has since regained a total of 3.16 million. (The private sector lost 8.87 million jobs during the Great Recession and has since regained 3.66 million jobs).
The US employment monitor consists of the following 14 variables:
- Weekly jobless claims
- Continuing claims
- Challenger job cuts
- Private sector non-farm payrolls
- Government employment
- ADP employment change
- ISM manufacturing employment index
- ISM services employment index
- Average weekly hours
- Labour market participation rate
- Long-term unemployment
- Total job openings
- Part-time workers
- US capacity utilisation
In February 2012, 12 of the 14 indicators are showing a positive or improving trend, although in many instance the strength of the improvement is not yet well established.
We have subjectively scored the strength of each indicator on a scale of -5 to +5, and currently 6 out of 14 variables have a score of only +1 or +2. On the negative side, two labour market indicators remain a significant concern. The first is the perpetual decline in government employment (the government has cut 276 000 jobs in the past year), reflecting the need for fiscal austerity in the US, and the second is the extremely low labour market participation rate, which suggests that many people remain discouraged by conditions in the labour market. More positively, there was a clear improvement in the ISM services employment index during January 2012, while the weekly jobless claims fell to their lowest level since August 2008.
Please note, although the US rate of unemployment has fallen noticeably in recent months, if is currently not a particularly useful indicator given the extremely low labour market participation rate. Rather, the change in non-farm payrolls is the single most important labour market indicator - and that continues to recover. On request, we have also attached a chart that illustrates the high correlation between US employment growth and US economic growth.
Overall, we still expect the US to add an average of between 100 000 and 200 000 new jobs a month in 2012.
This monitor will be updated monthly.
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