Fellow Shortrunners,

     

     Some economists have begun to worry that the economy will experience a jobless recovery, similar to the US experience that followed the 1990-1991 recession.  Simply put, as in 1992 when overall economic growth picked back up, employment failed to keep stride.  Hefty jobless claims and weak employment figures suggest that the same may be happening today.  With demand not picking back up, employers are finding little incentive to hire new workforces.  Even if no more large layoffs are planned, many companies are delaying new hiring activity.

     It just may take a decline in employment to spur continued economic growth.    Why?  During the peak of the economy (and the stock market's corresponding bubble) in 2001, the nation's companies invested too heavily in inventory and in capital, including human capital.  The IT industry, for example, has shed some 20% of its workforce over the past year.  Making the necessary cutbacks is an important step for corporations to return to profitability. 

     This is especially true of the current economy which is riddled with debt.  Normally, under conditions of low interest rates, inflation in the economy helps corporations to deal with heavy debt loads and overinvestment.  With today's low levels of inflation, indeed its risk of deflations, corporations risk falling into a Japanese style depression in which debt simply continues to mount.  Interest rates are likely to go lower.  With a rising oil price and a potential supply shock from a looming California dock workers strike, higher price levels may be on the horizon.  Nonetheless, policy makers should be cautious in preventing actual deflation to occur.

   

Sincerely,
Daniel Hicks


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Economic Releases

The data section provides charts and data for the most important economic indicators. 

Personal Income: 0.4%
 Release Date: 9/30

  • Growth in personal income outstripped growth in personal consumption with the indexes rising 0.4% and 0.3% respectively.  Continued growth in consumer spending will be a crucial factor in the economy's ability to fight off a second recession.

Construction Spending: -0.4%
 Release Date: 9/30

  • In spite of some of the lowest mortgage rates in history (a good indicator that the market is expecting interest rates to remain low), construction spending declined 0.4% in August.  The decrease was in line with analyst expectations. Construction activity will still be a major contributor to economic growth at its elevated level.

ISM Manufacturing Index: 49.5%
 Release Date: 10/01

  • During September, the ISM Manufacturing Index contracted, coming in at 49.5%.  The index is suggesting that the US manufacturing sector's bout with positive growth may give way to recession as has recently plagued the sector.

ISM Non-Manufacturing Index: 53.9%
 Release Date: 10/03

  • The non-manufacturing component of the US economy continued to grow in September, the ISM survey based index of business activity suggested on Thursday.  The increase was driven by a rise in new orders and order backlogs.  At the same time, the index's price component rose and the employment component declined.  These trends seem to fall in line with the majority of economic data released this week, showing some signs of business recovery, inflation, and labor market woes.

Jobless Claims: 417,000
 Release Date: 10/3

  • Jobless claims remained elevated last week, rising some 5,000 notches to 417,000.  A continuance of jobless claims above the 400,000 mark is problematic for the US economy and could be a indicate a drain on economic growth by weakness in the labor market.

Unemployment Rate: 5.6%
 Release Date: 10/03

  • Despite the economy having shed some 43,000 jobs, the overall unemployment rate fell to 5.6% in September from 5.7% during August.  The lower headline unemployment figure is good news for the labor sector which has been plagued by poor jobless claims figures and the threat of a second double-dip which is preventing businesses from hiring.

ECRI Future Inflation Gauge: 113.3
 Release Date: 10/04

  • A strong increase in the ECRI FIG from 109.4 to 113.3 in August is suggestive of possible future inflation in the US.

ECRI Weekly Leading Index: 118.1
 Release Date: 10/04

  • The ECRI Weekly Leading Index continued to decline last week falling to 118.1, a sign of continued economic weakness in the US.  The index is currently consistent with a frail economic recovery.

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Issue #121

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