I’m not getting good vibes from the latest batch of US economic indicators. Let’s have a close look at the ones for the labor markets and the manufacturing sector. One of my favorite monthly indicators of the labor market is especially disturbing. In its monthly survey of consumer confidence, the Conference Board asks their respondents whether jobs are available, plentiful, or hard to get. The percentage saying that “jobs are hard to get” (JHTG) is highly correlated with the unemployment rate. In August, it increased to 50% from 44.8% in July. Its most recent low was 42.4% during April 2011. So the labor market has actually been deteriorating every month for the past three months, according to this measure. It gets worse: The latest reading is the highest since May 1983. And that’s after the White House spent $880 billion aimed at creating 3.7 million jobs over the past two and a half years. We certainly didn’t get our money’s worth.
The JHTG indicator is also highly correlated with the four-week average of initial unemployment claims. The former is likely to be closely related to the pace of hiring, while the latter is more closely tied to the pace of firing. Of course, hiring and firing activities are also related. If businesses are cutting back on hiring again, they are more likely to be firing more workers again.
So I am concerned that initial unemployment claims could soon be heading higher again. If that doesn’t happen, it will be because most businesses slashed their payrolls in 2008 and 2009 and didn’t turn around and rehire everyone they let go. Still, the high correlation between JHTG and the jobless rate is unnerving given that the former is the highest in almost three decades.
This coming Monday, the ISM national survey of manufacturing purchasing managers will be released for September. The results are used to calculate the manufacturing purchasing managers index (M-PMI). This index was down to 50.6 during August, from this year’s high of 61.4 during February. I expect it will remain around 50.
If there is a surprise, it is more likely to be on the downside than the upside. I base this on the three regional surveys of manufacturers currently available through September that are conducted by the Federal Reserve Banks of Philadelphia, New York, and Richmond, as shown above.
This average tends to exceed zero when the economy is growing and to fall below zero when the economy is contracting. At least that’s been the limited history of this average since it first became available during July 2001. This year, it peaked at 25.6 during March. Then, it plunged to -16.1 during August, the lowest reading since April 2009. In September, it edged up to -10.8. So it remained significantly below zero. Notice that the M-PMI didn’t take a dive below its breakeven of 50 during August. So it might have continued to hold its own in September.