Private-sector employment increased by 217,000 from January to February on a seasonally adjusted basis, according to the latest ADP National Employment Report released today. The estimated change of employment from December 2010 to January 2011 was revised up to 189,000 from the previously reported increase of 187,000. This month’s ADP National Employment Report suggests continued solid growth of nonfarm private employment early in 2011. The recent pattern of rising employment gains since the middle of last year was reinforced by today’s report, as the average gain from December through February (217,000) is well above the average gain over the prior six months (63,000).
The fears of a jobless recovery may be receding but the US economy has a long way to go before pre-recession employment levels are achieved. As we stated previously the economy needs to create over 200,000 jobs per month for 48 consecutive months to achieve pre-recession employment levels. The six month average of 63,000 is still well below the required rate of job creation for a robust recovery to occur. The Unemployment Rate still exceeds 9%.
The February report is encouraging because it points to an accelerating pace of job creation. The post Christmas season employment surge represents a 30,000 job gain over January’s strong report that triples the six month moving average. The service sector accounted for over 200,000 of the job gains. The manufacturing and goods producing sector combined to create 35,000 jobs. Construction continues to mirror the moribund housing market shedding an additional 9,000 jobs during the month. The construction industry has lost over 2.1 million jobs since its peak in 2008.
The robust recovery in the service sector is welcomed but sustainable economic growth can only be achieved by a robust turn around in the goods producing and manufacturing sectors. Service sector jobs offer lower wages, tend to be highly correlated to retail consumer spending and positions are often transient in nature. Small and Mid-Sized Enterprises (SME) is where the highest concentration of service jobs are created and the employment figures bear that out with SMEs accounting for over 204,000 jobs created during the month of February.
Large businesses added 13,000 jobs during the month of February. The balance sheets of large corporations are strong. The great recession provided large corporates an opportunity to rationalize their business franchise with layoffs, consolidations and prudent cost management. Benign inflation, global presence, outsourcing, low cost of capital and strong equity markets created ideal conditions for profitability and an improved capital structure. The balance sheets of large corporations are flush with $1 trillion in cash and it appears that the large corporates are deploying this capital resource into non-job creating initiatives.
The restructuring of the economy continues. The Federal stimulus program directed massive funds to support fiscally troubled state and local government budgets. The Federal Stimulus Program was a critical factor that help to stabilize local government workforce levels. The expiration of the Federal stimulus program is forcing state and local governments into draconian measures to balance budgets. Government employment levels are being dramatically pared back to maintain fiscal stability. Public service workers unions are under severe pressure to defend employment, compensation and benefits of workers in an increasingly conservative political climate that insists on fiscal conservatism and is highly adverse to any tax increase.
The elimination of government jobs, the expiration of unemployment funds coupled with rising interest rates, energy and commodity prices will drain significant buying power from the economy and create additional headwinds for the recovery.
The principal macroeconomic factors confronting the economy are the continued high unemployment rate, weakness in the housing market, tax policy and deepening fiscal crisis of state, local and federal governments. The Tea Party tax rebellion has returned congress to Republican control and will encourage the federal government to pursue fiscally conservative policies that will dramatically cut federal spending and taxes for the small businesses and the middle class. In the short term, spending cuts in federal programs will result in layoffs, and cuts in entitlement programs will remove purchasing power from the demand side of the market. It is believed that the tax cuts to businesses will provide the necessary incentive for SME’s to invest capital surpluses back into the company to stimulate job creation.
The growing uncertainty in the Middle East and North Africa is a significant political risk factor. The expansion of political instability in the Gulf Region particularly Iran, Egypt and Saudi Arabia; a protracted civil war in Libya or a reignited regional conflict involving Israel would have a dramatic impact on oil markets; sparking a rise in commodity prices and interest rates placing additional stress on economic recovery.
Political uncertainty tends to heighten risk aversion in credit markets. The financial rescue of banks with generous capital infusions and accommodating monetary policies from sovereign governments has buttressed the profitability and capital position of banks. Regulatory uncertainty of Basel III, Dodd-Frank, and the continued rationalization of the commercial banking system and continued concern about the quality of credit portfolios continue to curtail availability of credit for SME lending. Governments are encouraging banks to lend more aggressively but banks continue to exercise extreme caution in making loans to financially stressed and capital starved SMEs.
Highlights of the ADP Report for February include:
Private sector employment increased by 217,000
Employment in the service-providing sector rose 202,000
Employment in the goods-producing sector declined 15,000
Employment in the manufacturing sector declined 20,000
Construction employment declined 9,000
Large businesses with 500 or more workers declined 2,000
Medium-size businesses, defined as those with between 50 and 499 workers increased 24,000
Employment among small-size businesses with fewer than 50 workers, increased 21,000
Overview of Numbers
The 202,000 jobs created by the SME sectors represents over 90% of new job creation. Large businesses comprise approximately 20% of the private sector employment and continues to underperform SMEs in post recession job creation. The strong growth of service sector though welcomed continues to mask the under performance of the manufacturing sector. The 11 million manufacturing jobs comprise approximately 10% of the private sector US workforce. The 20 thousand jobs created during February accounted for 10% of new jobs. Considering the severely distressed condition and capacity utilization of the sector and the favorable conditions for export markets and cost of capital the job growth of the sector appears extremely weak. The US economy is still in search of a driver. The automotive manufacturers have returned to profitability due to global sales in Latin America and China with a large portion of the manufacturing done in local oversea markets.
The stock market continues to perform well. The Fed is optimistic that the QE2 initiative will allay bankers credit risk concerns and ease lending restrictions to SMEs. A projected GDP growth rate of 3% appears to be an achievable goal. The danger of a double dip recession is receding but severe geopolitical risk factors continue to keep the possibility alive.
Interest rates have been at historic lows for two years and will begin to notch upward as central bankers continue to manage growth with a mix of inflation and higher costs of capital. The stability of the euro and the EU’s sovereign debt crisis will remain a concern and put upward pressure on interest rates and the dollar.
As the price of commodities and food spikes higher the potential of civil unrest and political instability in emerging markets of Southeast Asia, Africa and Latin America grows. Some even suggest this instability may touch China.
The balance sheets of large corporate entities remain flush with cash. The availability of distressed assets and volatile markets will encourage corporate treasurers to put that capital to work to capitalize on emerging opportunities. The day of the lazy corporate balance sheet is over.
Solutions from Sum2
Credit Redi offers SMEs tools to manage financial health and improve corporate credit rating to attract and minimize the cost of capital. Credit Redi helps SMEs improve credit standing and demonstrate to bankers that you are a good credit risk.
For information on the construction and use of the ADP Report, please visit the methodology section of the ADP National Employment Report website.
You Tube Video: John Handy, Hard Work
Risk: unemployment, recession, recovery, SME, political
O the wild charge they made!
All the world wondered.
Honor the charge they made,
Honor the Light Brigade,
Noble six hundred.
Charge of the Light Brigade
Alfred Tennyson, 1870
Today the Department of Treasury is sending out its economic stimulus checks to the US taxpayers. Each taxpayer will receive a tax rebate of $600 with additional amounts of $300 paid for each household dependent.
As a taxpayer I welcome the small relief from the burden of excessive taxation. As a business owner, I welcome the infusion of money into the economy with the hope that some of the dollars will find themselves into our corporate coffers. Though many deride the amount as just a small token, (after all what can one do with $600?) when viewed in the aggregate we are taking about a major cash infusion into the slowing US economy.
Sounds great but these types of financial gymnastics of our “managed economy” can in the long run produce some ill effects that will prolong and deepen economic malaise that we are all looking to avoid at any cost. In classic economics, pumping money into an economy is highly inflationary. Lots of money chasing goods drives prices up. This is happening on a global scale. In the case of the US dollar, more dollars in circulation will put additional pressure on the value of the dollar and may drive it lower.
This could be the Treasury Departments objective. The package will help to reset market driven interest rates, stimulate consumer demand at home and make US exports more attractive because of a cheap dollar. This might work but some think the cure is worse then the illness. The fear that the economic stimulus will spark an acceleration of inflation and add to the massive budget deficit of the Federal Government is real. Many critics are suggesting that the stimulus package is borne more from political expediency that does not address the systemic and structural issues that lie at the root of the countries current economic problems like shrinking manufacturing, crumbling infrastructure, wasteful spending, unfunded budgetary commitments and misplaced investment priorities.
So as Americans eagerly wait for the merry mailman to arm them in the current war against recession, General Paulson will be watching to see how his armies perform on the battlefields of the Malls of America.
Sony Hi Def TV’s to the right
Life Good GPS in front of me
Black berries in the rear..
Rode on the $600…
Risk: inflation, behavioral, consumerism, deficit spending, interest rates
I love Chinese food. And apparently so do many of my fellow Americans. You can’t walk down a main street in this country or roll into a strip mall without spotting a little Chinese takeout joint.
My favorite is Tommy Cheng’s. I probably stop there about once a week to pick up a takeout order to bring home to my family. I’ll spend about 50 bucks for my order and my family and I look forward to being together enjoying our weekly repast.
Being creatures of habit I usually get the same dishes. And I am growing concerned about rising rice prices and how it will boost the cost of my quart of roast pork fried rice? If the price of rice doubles I’ll have to pay almost $12.00 for my fried rice! OUCH!
Come to think of it, I’m wondering if Tommy Cheng will continue to throw in a quart of white rice with my order of General Tso’s Chicken.
We’ll have to consult the tea leaves on this one.
Risk: Inflation, retail, commodities, entertainment, fast food, small business
You Tube Video: Louis Jordan, Ain’t Nobody Here But Us Chickens
Fears grow over rice supplies the FT Weekend reports on a front page story.
The price of rice has risen 50% in the past two weeks. Speculators and hoarding are fattening the pockets of profiteers and are heightening concerns about political instability and social unrest. Consider the implications of a rice starved Philippines, Thailand and Myanmar or dare we say China? What will be the political impact of an acute rice shortage in North Korea? How will this regime react if it feels it’s not getting sufficient attention and relief from the global community? Will it stoke up its atomic reactors and aim a nuclear missile at the worlds head to hold it hostage until it extorts its fair share from the worlds dwindling rice bowl?
This is a chilling threat to global stability and peace. We submit that the power elites of the new world order need to focus its talents and treasure to address this potential powder keg. As Americans, we would like to suggest to our President Mr. Bush that these types of problems and issues are more worthy of your attention then spending a considerable amount of political capital to maneuver ICBMs into former Warsaw Pact counties.
You Tube Music: The Dragons Backbone
Risk: Political, Economic, Inflation, Commodities