Vital Signs: Without Job Growth, Recovery Could Stall

The main attraction for investors on this week’s busy economic calendar will be the Labor Dept.’s September employment report (coming out Oct. 2). The health of the job markets will be especially important in the recovery, because of the collapse in household balance sheets. Consumers will need more income in order to repair their finances and support new spending. Without a return to job growth, the second-half rebound now underway could peter out next year.

The news from the labor markets has been generally encouraging, although actual job growth is still a few months away. Payrolls declined again in August, falling by 216,000, but that was the smallest drop in a year. If job losses continue to diminish at the average monthly rate since January, payrolls would stop declining by the end of the year. For September, economists surveyed by Action Economics expect payrolls to decline by just under 200,000, and the unemployment rate to edge up to 9.8%, from 9.7% in August.

The downward trend in first-time jobless claims continues to support the forecast for fewer job losses. The four-week average of claims through Sept. 19, at 553,500 per week, was the lowest since January. However, weekly claims will have to drop well below 500,000 to be consistent with even modest job growth.

That may well happen by yearend, if economists are right about improving prospects for economic growth in the second half. Historically, growth in real GDP of 3% to 4%, the range increasingly expected by many economists, has been associated with payroll gains in the neighborhood of 150,000 per month. That pace of job growth would be sufficient to halt the rise in the jobless rate—perhaps earlier than analysts had expected only a few months ago.

One key part of the employment report that is sure to receive increasing attention in coming months is wage growth. Hourly earnings of production workers slowed sharply during the first half of the year, with monthly gains averaging only 0.1%. However, the pace picked up in July and August, with increases averaging 0.3% per month. A small part of that acceleration reflects this year’s hike in the minimum wage, but it is also related to the recent pickup in manufacturing activity.

As job losses slow and as companies lengthen their workweeks, the downdraft on weekly take-home pay will begin to ease. That may already be happening. Income from wages and salaries, which makes up about 60% of overall personal income, increased in July for the first time in nine months. Based on the August job report, another gain is likely, when August income data are reported this week. Still, overall income growth remains weak. Through July, aftertax incomes adjusted for inflation were only 0.6% ahead of their year-ago level, and the effect of Washington’s income support programs, which had lifted buying power in the first half, has now run out. That only heightens the importance of returning to at least modest job growth in the coming months.

Here’s the weekly calendar, from Action Economics.

  Top Economic Reports Report Date Time For Median Estimate Last Period Consumer Confidence Tuesday, Sept. 29 10:00 a.m. September 56.4 54.1 GDP (Third Report) Wednesday, Sept. 30 8:30 a.m. Q2 -1.3% -1.0% GDP Chain Price Index (Third Report) Wednesday, Sept. 30 8:30 a.m. Q2 0.0% 0.0% Chicago PMI Wednesday, Sept. 30 9:45 a.m. September 51.0 50.0 Personal Income Thursday, Oct. 1 8:30 a.m. August 0.2% 0.0% Personal Consumption Expenditures Thursday, Oct. 1 8:30 a.m. August 1.0% 0.2% ISM Index (Manufacturing) Thursday, Oct. 1 10:00 a.m. September 53.3 52.9 Construction Spending Thursday, Oct. 1 10:00 a.m. August -0.3% -0.2% Domestic Auto Sales (Millions) Thursday, Oct. 1 afternoon September 3.8 5.3 Domestic Light Truck Sales (Millions) Thursday, Oct. 1 afternoon September 3.9 4.8 Nonfarm Payrolls (Thousands) Friday, Oct. 2 8:30 a.m. September -192 -216 Manufacturing Payrolls (Thousands) Friday, Oct. 2 8:30 a.m. September -60 -63 Unemployment Rate Friday, Oct. 2 8:30 a.m. September 9.8% 9.7% Average Hourly Earnings Friday, Oct. 2 8:30 a.m. September 0.2% 0.3% Average Weekly Hours Worked Friday, Oct. 2 8:30 a.m. September 33.1 33.1 Factory Orders Friday, Oct. 2 10:00 a.m. August 1.1% 1.3%

  Other Reports and Events Report/ Event Date Time For Dallas Fed Survey Monday, Sept. 28 10:30 a.m. September ICSC-UBS Store Sales Tuesday, Sept. 29 7:45 a.m. Sept. 20-26 Johnson Redbook Weekly Store Sales Tuesday, Sept. 29 8:55 a.m. Sept. 20-26 S&P Case Shiller Home Price Index Tuesday, Sept. 29 9:00 a.m. July SPEECH: Philadelphia Fed President Plosser Tuesday, Sept. 29 7:00 p.m. Mortgage Applications Wednesday, Sept. 30 7:00 a.m. Sept. 20-26 ADP Employment Data Wednesday, Sept. 30 8:15 a.m. September SPEECH: Atlanta Fed President Lockhart Wednesday, Sept. 30 10:30 a.m. SPEECH: Fed Vice-Chairman Kohn Wednesday, Sept. 30 12:30 p.m. Initial Unemployment Claims Thursday, Oct. 1 8:30 a.m. Sept. 20-26 Pending Home Sales Thursday, Oct. 1 10:00 a.m. August SPEECH: Atlanta Fed President Lockhart Thursday, Oct. 1 5:30 p.m.

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