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 is heading back into recession.
Over the past 12 months, the US added an average of 137 00 jobs a month and is currently forecast to grow at just over 2% in 2012.
Hence we have decided to create a US employment monitor in order to track the overall state of the US labour market. The monitor consists of 14 variables, including:
- 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
At the moment, 11 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 8 of 14 variables have a score of only +1 or +2. On the negative side, three labour market indicators remain a concern, namely:
- the perpetual decline in government employment, reflecting the need for fiscal austerity in the US;
- the ISM services employment index, which has fallen below the critical 50 index level for the past two months; and
- the extremely low labour market participation rate, which suggests that many people remain discouraged by conditions in the labour market.
Overall, we still expect the US to add an average of between 100 000 and 200 000 new jobs a month in 2012. The next key employment data is scheduled for release on 3 February 2012.
The monitor will be updated monthly.
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