Payroll Revisions Point to Stronger U.S. Job Market
Employment gains in the U.S. have been understated since the middle of 2010, showing the expansion is in a better position to withstand headwinds such as rising gasoline prices.
The Labor Department has raised its initial estimate of payroll employment in all but two months since July 2010 through the end of last year. The upward revisions are likely to continue, said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York, because job gains have been revised “sharply higher” in seven of the last eight expansions.
The size of the revisions to monthly job growth was bigger in the second half of 2011 than in the first, helping explain a jump in wages and salaries that may invigorate American households, whose spending accounts for about 70 percent of gross domestic product. Stronger consumer finances put the world’s largest economy in a better position to withstand rising higher costs and fallout from a slump in Europe.
“The revisions tell us that the household sector was in much better financial condition than we previously thought,” LaVorgna said in a telephone interview. “When you have extra income, people have more firepower.”
Companies in the U.S. added 216,000 workers to payrolls in February, up from a gain of 173,000 a month earlier, according to a report today from Roseland, New Jersey-based ADP Employer Services.
Stocks rose after the report and as more investors agreed to a Greek debt swap. The Standard & Poor’s 500 Index climbed 0.7 percent to 1,352.63 at 4 p.m. in New York, after a 1.5 percent decline on March 6.
The Labor Department in two days may say total payrolls rose by 210,000 last month, according to the median estimate of economists surveyed by Bloomberg News. It would mark the strongest three-month stretch in almost a year. The unemployment rate may have held at a three-year low of 8.3 percent.
Employers are reaching the limit of their ability to wring efficiency from their workforces, suggesting they may need to hire more staff. Worker productivity rose at a slower pace in the fourth quarter and labor costs jumped, revised figures from the Labor Department showed today.
The measure of employee output per hour climbed at a 0.9 percent annual rate, after a 1.8 percent gain in the prior three months. Expenses per worker climbed at a 2.8 percent rate, more than twice as much as previously estimated.
Caterpillar Inc. (CAT), based in Peoria, Illinois, is one company making investments that it says will boost its own payrolls and that of other firms. The world’s largest maker of construction and mining equipment said it will build a 1 million square-foot factory in Georgia, which will employ 1,400 workers and support an additional 2,800 positions in the U.S.
Manufacturing is “perhaps where you’ll see some stronger numbers and upward revisions,” LaVorgna said. Factories probably added 20,000 workers last month, compared with 50,000 in January, according to economists surveyed by Bloomberg.
Elsewhere, German factory orders unexpectedly declined in January as foreign demand for investment goods such as machinery slumped. The German economy, Europe’s largest, contracted in the fourth quarter of 2011 as the sovereign debt crisis curbed demand for its exports across the euro region.
The U.S. labor-market recovery has accelerated in recent months. Employers have added 1 million workers to payrolls since July. During the same period, the jobless rate dropped by 0.8 percentage point, the biggest decline in as many months since 1984.
Revisions resulted in 235,000 more U.S. jobs added in the second half of 2011 than the Labor Department initially reported, or an average of 39,000 a month. During the previous seven economic expansions, revisions added about 34,000 jobs to payrolls each month, according to LaVorgna’s calculations.
“The labor market is running at a stronger pace than those initial prints have been suggesting,” Dean Maki, chief U.S. economist at Barclays Capital Inc. in New York, said in a telephone interview. “When GDP is expanding, the revisions tend to be upwards. The initial number we get is typically too low.”
“In terms of the behavior of the labor market, it’s looking more and more similar to the expansion of the early ’90s,” LaVorgna said.
The decade following the 1991 recession marked the longest stretch of economic growth since the National Bureau of Economic Research, the group that dated U.S. business cycles, began keeping records in 1854.
Worker pay is increasing in tandem. Wages and salaries in the second half of 2011 grew a combined $197.3 billion, the most since the six months ended March 2007, according to the Commerce Department’s revised figures released last week.
Those gains may help Americans at the gas pump. Gasoline prices that have increased 48 cents this year through March 6 to $3.76 a gallon, according to AAA, the nation’s largest motoring organization.
“A labor market with momentum can buffer the economy from higher gas prices through the new paychecks generated for an expanding workforce,” Credit Suisse economists in New York, led by chief economist Neal Soss, wrote yesterday in a research note.
Both Maki and LaVorgna said they foresee further revisions to job gains as the U.S. economy continues to expand.
“Over time, we expect nonfarm payrolls to be revised higher,” LaVorgna said. “History strongly suggests these upward revisions in the current cycle will continue for some time, probably until the onset of the next downturn.”
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