Posts Tagged ‘unemployment’

October Job-Creation Numbers Show Slight Uptick

Monday, November 26th, 2012

The October employment report won’t blow anyone out of the water, but showed a modest improvement that caused many to breathe a sigh of relief.  According to the Department of Labor, 171,000 jobs were added in October – the highest number since February.  Retailing (up 36,000); healthcare (up 31,000) and business services (up 51,000) showed the most significant gains.  August and September employment numbers were also revised upwards by 84,000 jobs.  The nation’s unemployment rate stood at 7.9 percent, a slight tick upwards from the 7.8 percent reported in September.

Possibly of greater significance is the fact that the workforce showed signs of growth, with the labor force participation rate rising to 63.8 percent.  More than 500,000 Americans started job hunting in October.  The current number includes 12.3 million people who have no jobs; 8.3 million who work part-time; and 2.4 million who have stopped looking for work.  Compare this with October, 2009 – at the height of the Great Recession — when the unemployment rate was 10 percent.  Prior to the recession, the unemployment rate averaged five percent or less. Even though it has declined from its peak, it is still approximately three percent less than what is considered to be full employment.

Writing in The New Yorker, John Cassidy says that “Over the past year, the total number of people employed has risen from 140.3 million to 143.4 million, according to the household survey.  After allowing for population growth, the number of people unemployed has fallen by a million, and the number working part-time or no longer actively looking for work has dropped by about half a million.  The number of people who have been out of work for more than six months – the hard-core unemployed – has fallen by more than 800,000, and it now stands at five million.”

Despite the upbeat news, Americans still are not seeing any improvement in their standard of living.  In October, the average hourly wage for workers in the non-farm sector fell one penny to $23.58.  Wages have risen a scant 1.6 percent in the last year, less than the inflation rate.

Is Greece Headed Towards a Third Bailout?

Monday, April 23rd, 2012

Lucas Papademos, Greece’s prime minister, said that his crisis-plagued country could require a third bailout just weeks after it secured a second round of rescue funds after much discussion in Brussels. Athens may have received the biggest bailout in history but another lifeline could not be ruled out, according to Papademos.  To date, the European Union (EU) and International Monetary Fund (IMF) have committed a total €240 billion to the nearly bankrupt nation.  “Some form of financial assistance might be necessary but we have to work intensely to avoid such an event,” Papademos said, noting that additional spending cuts are inevitable.  Whatever government emerges after the upcoming general election, it is vital that is it prepared for the measures.  “In 2013 – 2014, a reduction in state spending of about €12 billion is required under the new economic program,” Papademos said.  “Every effort must be made to limit wasteful spending and not to further burden salaries of civil servants.”

Greece’s new government will have “about 60 days” to enact long-overdue structural reforms and agree on ways of reining in public debt before officials make a decisive inspection tour in June.  “It is very important that there is no let up in the pace of reforms after elections,” said a senior Papademos aide.  The chiefs of both the EU and IMF missions to Greece said while progress is being made in meeting deficit-reducing targets, a lot of work remains to be done.  “There are still many measures to be taken, painful ones too.  I believe we’ll be able to see in the second half of the year in which direction we’re going, whether we’re on the right path or not,” said Matthias Mors, head EU monitor.

Papademos reiterated that Greece will do everything necessary to remain in the Eurozone, saying the cost of an exit would be “devastating.  More than 70 percent of the Greek people support the country’s continuing participation in the euro area,” he said.  “They realize, despite the sacrifices made, that the long-term benefits from remaining in the Eurozone outweigh the short-term costs.  Greece will do everything possible to make a third adjustment program unnecessary,” Papademos said.  “Having said that, markets may not be accessible by Greece even if it has implemented fully all measures agreed on.  It cannot be excluded that some financial support may be necessary, but we must try hard to avoid such an outcome.”

Private investors in Greek debt wrote down the value of their investment by 53.5 percent, or risk losing everything in a possible default.  Public-sector jobs are being slashed, workers ‘ wages are being frozen, welfare payments are being slashed, and taxes are being raised.  Greece’s official unemployment rate is currently more than 20 percent.  If Greece does default, it could start a domino effect that would drag down other ailing European economies — possibly plunging the Eurozone into recession.

According to Papademos, “The real economy is still weak, and high unemployment is likely to persist in the near future.  The challenging period ahead of us needs to be addressed with great care.  If we do things right, implementing all measures agreed upon in a timely, effective and equitable manner, and if we explain our policy objectives and strategy convincingly, public support will be sustained.  An improvement in confidence would have a positive multiplier effect on economic activity and employment.”

When asked if Greece might return to its old currency, Papademos said “The consequences would be devastating.  A return to the drachma would cause high inflation, unstable exchange rate, and a loss of real value of bank deposits.  Real incomes would drop sharply, the banking system would be severely destabilized, there would be many bankruptcies, and unemployment would increase.  A return to the drachma would increase social inequalities, favoring those who have money abroad.”

Rising Unemployment Could Push Eurozone Into a Double-Dip Recession

Wednesday, April 18th, 2012

Europe’s unemployment has soared to 10.8 percent, the highest rate in more than 14 years as companies from Spain to Italy eliminated jobs to weather the region’s crisis, according to the European Union’s (EU) statistics office.  That’s the highest since June 1997, before the Euro was introduced.  European companies are cutting costs and eliminating jobs after draconian austerity measures slashed consumer demand and pushed economies from Greece to Ireland into recession.

According to Eurostat, the number of unemployed totaled 17.1 million, nearly 1.5 million higher than in 2011.  The figures stand in marked contrast to the United States, which has seen solid increases in employment over the past few months.  “It looks odds-on that Eurozone GDP contracted again in the first quarter of 2012….thereby moving into recession,” said Howard Archer, chief European economist at IHS Global Insight.  “And the prospects for the second quarter of 2012 currently hardly look rosy.”

The North-South divide is evident, with the nations reporting the lowest unemployment rates being Austria with 4.2 percent; the Netherlands at 4.9 percent; Luxembourg at 5.2 percent; and Germany at 5.7 percent.  Unemployment is highest among young people, with 20 percent of those under 25 looking for work in the Eurozone, primarily in the southern nations.  The European Commission, the EU’s executive arm, defended the debt-fighting strategy, insisting that reforms undertaken by governments are crucial and will ultimately bear fruit.  “We must combat the crisis in all its fronts,” Amadeu Altafaj, the commission’s economic affairs spokesman, said, stressing that growth policies are part of the strategy.

According to Markit, a financing information company, Germany and France, the Eurozone’s two powerhouse economies, saw manufacturing activity levels deteriorate.  France fared the worst with activity at a 33-month low of 46.7 on a scale where anything below 50 indicates a contracting economy.  Only Austria and Ireland saw their output increase.

Spain, whose government recently announced new austerity measures, had the Eurozone’s highest unemployment rate at 23.6 percent; youth unemployment — those under 25 years of age — was 50.5 percent.  Greece, Portugal and Ireland — the three countries that have received bailouts — had unemployment rates of 21 percent, 15 percent and 14.7 percent respectively.

With unemployment rising at a time of austerity, consumers have stopped spending and that holds back the Eurozone economy despite signs of life elsewhere.  “Soaring unemployment is clearly adding to the pressure on household incomes from aggressive fiscal tightening in the region’s periphery,” said Jennifer McKeown, senior European economist at Capital Economics.  She fears that the situation will worsen and that even in Germany, where unemployment held steady at 5.7 percent, “survey measures of hiring point to a downturn to come.”

The numbers are likely to worsen even more. “We expect it to go higher, to reach 11 percent by the end of the year,” said Raphael Brun-Aguerre, an economist at JP Morgan in London.  “You have public sector job cuts, income going down, weak consumption.  The economic growth outlook is negative and is going to worsen unemployment.”

Writing for the Value Walk website, Matt Rego says that “By the looks of it, Europe could be heading for a recession very soon.  If the GDP contracts this 1st quarter of 2012, they will most likely be in a double dip.  Those are some pretty scary numbers and forecasts because they would send economic aftershocks around the world.  If Europe goes into a double dip and U.S. corporate margins do peak, we could be looking at trouble.  If you are a ‘super bull’ right now, I would reconsider because we are walking the line for both factors coming true and there really is nothing we can do, the damage is done.  Could we have seen all of the year’s gains in the beginning of this year?  Probably not but this European recession scare would certainly trigger a correction in the U.S. markets.  Bottom line, get some protection for your portfolio.  Buy stocks that aren’t influenced by economic times and buy protection for stocks that would react harshly to a double dip.”

Economists Predicting Rosier Outlook

Wednesday, March 7th, 2012

Economists are increasingly optimistic that certain elements of the economy will improve throughout 2012, although they are still cautious in their expectations on the overall pace of economic growth.  According to the National Association for Business Economics (NABE), forecasters have increased their expectations for employment, new home construction and business spending this year.  But they held on to their average prediction that America’s GDP will grow at a rate of 2.4 percent.  That’s a slight improvement when compared with 2011; economists say the economy grew 1.6 percent last year.

GDP represents the economy’s total output of goods and services.  The latest forecast is in line with one issued by the group last fall that called for the economy to grow 2.4 percent this year.  Forecasters predict growth will be stronger in the second half of 2012 than it will be through June.  NABE economists see the unemployment rate sticking at 8.3 percent this year. That’s improved from their November forecast of 8.9 percent and a sharp drop from October of 2009 when unemployment peaked at 10 percent.  The economists expect job growth to accelerate in 2013, with the unemployment rate falling to 7.8 percent.  GDP growth needs to be above three percent to reduce unemployment significantly.

Homebuilders are expected to break ground on 700,000 new homes this year, a 15 percent increase when compared with 2011.  Another 850,000 are expected to be built in 2013.

The economists are also forecasting robust business spending growth in 2012, slightly raising their forecast to 8.1 percent growth this year.  For 2013, spending is likely to slow slightly, but remain strong at 7.3 percent.  Industrial production is expected to increase more or less 3.5 percent this year and 3.3 percent next year.  Estimates for 2012 spending on new equipment and software rose to 8.1 percent from 8 percent, according to the NABE.

Despite a brightening forecast for employment, housing and business spending, the NABE Outlook Panel expects consumers to continue to save their money this year.  They expect that spending will increase just 2.1 percent this year and 2.3 percent in 2013.  The rate is below historical average of 2.8 percent, highlighting an economy that’s going in the right direction, but still sluggish.

The improved jobs outlook comes at the same time as larger gains in business investment and homebuilding than were anticipated.

Three consecutive months of accelerated job growth are sustaining the economic expansion that began in June 2009.  Employers added 243,000 jobs in January, the highest number in nine months.

According to the study, Economists responding to the latest NABE Outlook Survey are seeing strength in a number of economic measures and have subsequently increased their expectations.  Despite increases in a number of forecasts, however, economists remain guarded on US economic growth.  Economists’ expectations for export growth have also weakened over the last four months.  Collectively, forecast uncertainty among the economists appears to have diminished slightly over the last several months.”

In terms of exports, the economists expect 4.6 percent growth in 2012, compared with their November prediction of 6.1 percent.  They also reduced their projection for 2012 import growth from 4.3 percent to 3.5 percent.  Both rates are expected to improve next year.

Is Hard-Hit Ireland Resolving It’s Economic Crisis?

Wednesday, February 8th, 2012

Ireland was one of the nations that was hardest hit by the Eurozone crisis, but now it’s being seen as leading stricken nations in their efforts to turn their economies around.  International Monetary Fund (IMF) and European Union (EU) officials are impressed by its austerity measures, imposed after the massive 2010 bailout.  For the average Irish person, however, the gain is hard to see.  Public services have been slashed, and housing prices have declined 60 percent.  Approximately 1,000 young Irish people emigrate every week, and there’s extensive cynicism whether economic medicine being taken by the once-mighty Celtic Tiger actually works.

Ireland’s unemployment is currently upwards of 14 percent.  At the start of Ireland’s second year of austerity, there have been tax rises, wage freezes, layoffs and more.  This is being supervised by the so-called Troika, the European Commission (EC), the European Central Bank (ECB) and the IMF.  These entities bailed out Ireland after the property bubble burst and its banks collapsed.

Larry Elliott, economics editor of The Guardian, describes Ireland as “the Icarus economy.  It was the low-tax, Celtic tiger model that became the European home for US multinationals in the hi-tech sectors of pharma and IT.  Ireland was open, export-driven and growing fast, but flew too close to the sun and crashed back to earth.  The final humiliation came when it had to seek a bailout a year ago.  In a colossal property bubble, debt as a share of household income doubled, the balance of payments sank deeper and deeper into the red, the government finances become over-reliant on stamp duty from the sale of houses and the banks leveraged up to the eyeballs.

During the time running up to the bubble bursting, Elliott says that “A series of emergency packages and austerity budgets followed as the government sought to balance the books during a recession in which national output sank by 20 percent.  In November 2010, the Irish government asked for external support from the EU and the IMF.  Again, it had little choice in the matter.  The terms of the bailout were tough and there has been no let-up in the austerity.  The finance minister, Michael Noonan, plans to put up the top rate of VAT by two points to 23 percent.  At least 100,000 homeowners are in negative equity, and welfare payments (with the exception of pensions) have been slashed.  In recent quarters there have been signs of life in the Irish economy, but the boost has come entirely from the export sector, which has benefited from the increased competitiveness prompted by cost-cutting.  The best that can be said for its domestic economy is that the decline appears to have bottomed out.  At least for now.

“Around a third of Ireland’s exports go to Britain, which is heading for stagnation, a third go to the eurozone, which is almost certainly heading for recession, and a third go to the United States, which will suffer contamination effects from the crisis in Europe.  That’s the bad news.  The good news is that the supply side of the Irish economy is sound.  Much attention is paid to Ireland’s low level of corporation tax, which has certainly acted as a magnet for inward investment, but that is not the only reason the big multinationals have arrived.  There is a young, skilled workforce and Dublin does not have London’s hang-up about using industrial policy to invest capital in growth sectors.  Ireland had a dysfunctional banking system, but most of the multinationals — which account for 80 percent of the country’s exports — don’t rely on domestic banks for their funding.  The problem is that you can’t run a successful economy on exports alone, no matter how competitive they might be.”

In fact, Ireland’s prime minister, Enda Kenny, recently called for even deeper budget cuts.  Kenny outlined savings of up to €3.8 billion needed to slash its national debt under the terms of 2010’s EU/International Monetary Fund bailout.  Kenny appealed for understanding from the Irish people and stressed that the nation may have to endure a further two or three harsh budgets to put the country’s finances in order. He said on Saturday that the Republic “was in the region of €18 billion out of line”.

“It is the same old story with Ireland in our view — doing good work and will continue to do so,” Brian Devine, economist at NCB Stockbrokers in Dublin said.  “But the country is still extremely vulnerable given the level of the deficit.”  The anticipated adjustments total approximately eight percent of Ireland’s economy, and follow spending cuts and tax rises of more than €20 billion since the economy began to decline in 2008.

And how are the Irish people dealing with austerity? “We’re squeezed to the pips,” said Tommy Larkin, a 35-year-old mechanic changing tires and oil on the double in northside Dublin.  “I never had to watch my money in the good times, but that’s all I do with my money now.”

Wages for middle-class families have been cut around 15 percent, while the nearly 15 percent unemployed have seen welfare and other aid payments cut.  The government recently imposed a new household tax, and is planning new water charges next.  Driving a car can mean an annual fee of anything from $205 to $3,045, while recent fuel-tax increase haves taken gas upwards of $7.25 per gallon.

A Tale of Two Countries: Germany and Spain

Monday, January 23rd, 2012

Germany’s unemployment declined more than predicted in December as car and machinery exports boomed and one of the mildest winters on record helped construction jobs. The number of jobless people declined a seasonally adjusted 22,000 to 2.89 million, according to the Nuremberg-based Federal Labor Agency.  Economists had forecast a decline of 10,000.  The adjusted jobless rate fell to just 6.8 percent.  German firms are working virtually nonstop to fulfill orders for exports and investment goods.  As a result, the nation has defied a debt crisis that the European Commission fears will unleash a recession throughout the Eurozone.  The Munich-based IFO Institute’s measure of business confidence also rose unexpectedly in December.  Polls show that the majority of Germans see their jobs as secure even as Europe’s biggest economy slows.  Forward-looking indicators including IFO’s underscore that the German jobs motor is fundamentally intact, said Johannes Mayr, a senior economist at Bayerische Landesbank in Munich.

Except for an unexpected 6,000 increase in October, German unemployment has declined in every month since June 2009. The average jobless total in unadjusted terms for 2011 was well below the three million mark, Labor Agency head Frank-Juergen Weise said.  “German unemployment mastered the dual impact of the debt crisis and weakening economic growth in 2011 but these risks remain, accompanying us as we enter the new year, Weise said.

Both the jobless total and the jobless rate were at their lowest level since unification in 1991, noted German Economy Minister Philipp Roesler. “2011 can be described as the most successful since German unification for working people,” Roesler said.  “Demand for labor remains very high, despite the current economic risks.  Overall, the upturn in employment should continue, albeit at a slower rate.  The labor market remains one of the main pillars of our economy,” the minister said.

The national statistics office Destatis reported that the number of employed people in Germany hit a new record of 41.04 million in 2011, with more than 500,000 jobs created.  It was the first time the number of people working in Germany has risen above 41 million, Destatis said.  The nation’s population is approximately 82 million.

“Overall, labor market conditions will remain markedly healthier in Germany than in most other countries in Europe in the months ahead,” said IHS Global Insight’s Timo Klein. At present, Germany is confronting a shortage of skilled labor.  Leading economists anticipate that Germany’s economic growth will slow in 2012, in line with other major Eurozone economies, which may put a squeeze on wages and jobs.  But, unemployment at a record low for the last 20 years, is a position that most countries envy and a sign of the way Germany has rebuilt itself since the Wall was torn down.

“Germany’s manufacturing and export-driven economy finished the year strongly — piling on another 22,000 jobs in December,” said Anthony Cheung of market analysts RANsquawk.  “Behind the strong performance lie some adept moves by Germany’s exporters.  As their Eurozone markets weakened, they have been very good at moving their focus elsewhere.  German carmakers have more than compensated by dramatically growing sales to developing markets.”

This is one reason why companies are not shedding significant staff, even if the economy hits a downturn, said Berenberg Bank’s Holger Schmieding.

Germany’s labor market strength means that domestic demand will “remain a pillar of support” to the eurozone “under very challenging circumstances otherwise,” Schmieding said.  The Eurozone badly needs this help.  For example, Spain again published dire labor market data with the jobless rate rising by nearly 2,000 in December when compared with November.  Eurostat’s most recent data showed October unemployment in Spain at 22.8 percent, by far the Eurozone’s highest.

Spain represents an entirely different scenario.  During 2011, unemployment in Spain soared 7.9 percent, totaling an astonishing 322,286 individuals.  Nearly one-third of all the Eurozone’s unemployed are Spanish; approximately 50 percent of young Spaniards are out of work.  The tough austerity measures outlined by the new prime minister, Mariano Rajoy, are likely to push Spain’s jobless rate even higher.  These include €8.9 billion in spending cuts and tax increases to cut Spain’s borrowing which should total €16.5 billion in 2012.  Spain closed out 2011 with a deficit of 8 percent of its GDP, significantly higher than the six percent reported at the end of 2010.  “This is the beginning of the beginning,” said Deputy Prime Minister Saenz de Santamaria, noting that Spain is facing “an extraordinary, unexpected situation, which will force us to take extraordinary and unexpected measures.”  She stressed that the wealthiest will be increasingly taxed for at least two years, resulting in expected budgetary gains of €6 billion.

These numbers represent a new 15-year high in Spain’s unemployment rate “The figures for the number of registered unemployed for the month of December confirm the deterioration of the economic situation during the second half of the year,” according to Spain’s labor ministry.  Once the Eurozone’s job creation engine, Spain has struggled to find jobs for the millions thrown out of work since the 2008 property bubble collapse.

The bad news fueled fears that Spain, the Eurozone’s fourth-largest economy, was slipping back into recession after the economy posted zero growth in the 3rd quarter of 2011.  Prime Minister Rajoy’s new government has promised to fight unemployment and fix the country’s finances as its top priorities.  Rajoy plans to present a major labor market reform which will alter hiring laws and Spain’s collective bargaining system to encourage companies to hire workers.

Spain’s secretary of state for employment, Engracia Hidalgo, said the successive labor reforms carried out by the previous government “never made the labor market more dynamic and flexible.”  Spain  lets the jobless receive unemployment benefits for a maximum of two years.  Prime Minister Rajoy’s government extended a monthly payment of 400 euros ($520) for people whose benefits have run out.  Otherwise, the payments would have expired in February.

Santa Brings More Than 200,000 New Jobs in December

Monday, January 16th, 2012

The United States added more than 200,000 jobs in December of 2011, building on a strengthening employment market that dominated the second half of the year.  This brought the unemployment rate down to 8.5 percent from the revised 8.7 percent, which had been predicted in November.  The primary growth was in transportation — primarily courier services that hired for the holidays — healthcare and manufacturing, according to the U.S. Bureau of Labor Statistics.

“It would have been even better without the drag from Europe,” said John Canally, economic strategist at LPL Financial, a stock brokerage firm. “The Europe situation created uncertainty, and uncertainty was used as a reason not to hire until now.”  The year ended even more strongly than economists had predicted.  They had forecast that employers would add a net 150,000 jobs in December, according to a survey by Factset. They also had predicted that the unemployment rate would tick up to 8.7 percent from November’s 8.6 percent; this is the lowest rate since March 2009.

In the end, November’s unemployment rate was revised up in this report, to 8.7 percent.  The better-than-expected monthly gain of 219,000 private-sector jobs means American businesses have replaced more than three million of the 4.2 million private-sector jobs that were lost the past 13 months. The private-sector jobs gained since employment bottomed in February of 2010 marks the strongest recovery since the 1990-1992 recession, when U.S. businesses added 4.2 million jobs in the same amount of time.

The new job numbers highlight the fact that the U.S. economy is on its way to recovery even as strains in Europe persist,” said David Watt, senior currency strategist at RBC Capital in Toronto. The fact that the labor market is gaining traction should be good news to the Obama administration, whose economic policies are relentlessly attacked by the political opposition.

This string of better-than-anticipated economic indicators has highlighted the stark contrast between the recovery in the world’s biggest economy and Europe, which faces bad times for months or even years.  Even with the good news, the American economy needs an even faster pace of job growth over a sustained period to make a noticeable dent in the pool of the 23.7 million people who remain out of work or underemployed in the wake of the 2007-09 recession.

December marked the 15th consecutive month that employment numbers have risen. Marcus Bullus, trading director at MB Capital, said: “That’s one hell of a number. Such an impressive fall in both the number of jobless Americans and the unemployment rate will cheer everyone bar Republican spin doctors.  The Obama administration could be forgiven for showboating over this convincing evidence that America’s economy is pulling away from Europe’s.  From a market perspective, strong US data like this will add to optimism, but nobody doubts the considerable downward pressure the Eurozone will continue to place on the global marketplace during 2012.”

Automatic Data Processing’s (ADP) numbers for December are even more impressive, saying the government added 325,000 jobs in December.  ADP’s figures do not always match the government’s, and economists warned that seasonal factors could have boosted the figures. Even so, all the major measures of the job market appear to be on the upswing.

Lasting payroll gains are needed to chip away at joblessness and support household spending, which accounts for approximately 70 percent of the world’s largest economy. The labor market figures come on the heels of recent data showing increased manufacturing and a rebound in consumer sentiment that show the U.S. is barely impacted by Europe’s debt crisis.  “You got the trifecta — more people working, wages up and the average work week up,” said Stuart Hoffman, chief economist at PNC Financial Services Group Inc., who accurately forecast the December payroll gains.  “You can’t really argue that that isn’t a sign of significant improvement in the job market.”

Yearly benchmark revisions showed the unemployment rate averaged 8.9 percent in 2011, down from 9.6 percent and 9.3 percent in the previous two years. It still ranks as the worst three-year period since 1939 to 1941.

Writing in the Wall Street Journal, Phil Izzo says the increase is “for real.” According to Izzo, “While the unemployment rate has been falling in part due to people leaving the labor force, a large portion of this month’s number appears to come from people finding jobs.

“The unemployment rate is calculated based on people who are without jobs, who are available to work and who have actively sought work in the prior four weeks. The actively looking for work’ definition is fairly broad, including people who contacted an employer, employment agency, job center or friends; sent out resumes or filled out applications; or answered or placed ads, among other things. The rate is calculated by dividing that number by the total number of people in the labor force.

“The key to the drop in the broader unemployment rate was due to a 371,000 drop in the number of people employed part time but who would prefer full-time work, that comes on top of big drops in that category over the past two months. That number could reflect people having their hours increased or part-time workers moving on to full time work,” Izzo concluded.

Job Creation Strengthens, But Unemployment Increases?

Wednesday, January 11th, 2012

American companies added 244,000 jobs to the economy in April, the fastest pace in five years.  In an ironic twist, however, the unemployment rate climbed to nine percent, according to the Department of Labor.  The unemployment rate fell to 8.8 percent in March after dropping continuously since November’s rate of 9.8 percent rate. Economists had predicted that just 186,000 jobs would be added, so the numbers show that the economy is gaining strength.  “What we’re seeing is a sustained pick-up in hiring and it suggests that businesses have gained enough confidence to look past short-term fluctuations in demand,” said Aaron Smith, a senior economist at Moody’s Analytics.

“Headwinds remain, but not enough to derail the recovery or set us back momentarily,” said Diane Swonk, chief economist at Mesirow Financial in Chicago, although she remains cautious about the outlook.  According to Swonk, the increase in new unemployment claims were reported in the weeks after the April jobs surveys.  Job losses in the public sector could intensify, with more teachers getting laid off as the school year ends and local governments deal with budget shortfalls.

The number of officially unemployed Americans totaled 13.75 million in April, an increase over the 205,000 reported in March, according to the Labor Department.  “At this point, coming out of a recession this deep, we should be getting unambiguously huge growth, of 300,000 to 400,000 (new jobs) a month,” said Heidi Shierholz, a labor economist at the Economic Policy Institute.  “And it’s just nowhere near that.  We’re still in a rocky place.”

April’s job growth was in multiple sectors.  For example, the retail industry added 57,100, approximately half at general merchandise stores.  Manufacturing added 29,000 more workers in April.  Since December 2009, factory payrolls have risen by 250,000, according to the Labor Department.  Business and professional services, whose wages tend to be higher than average, grew by 51,000, with consulting businesses, computer services and architectural firms experiencing growth.  Educational and health services, and the leisure industry, each also added nearly as many jobs.  Even the construction industry saw a small gain in April.  Government was the sole employment group that declined; its payrolls contracted by 24,000, primarily due to cuts at state and public agencies.

According to Austan Goolsbee, Chairman of the White House Council of Economic Advisers, “The last three months we’ve added more than a quarter million jobs, on average, every month.  That’s very heartening and the fact that it was, really, across a whole lot of industries.”

According to Heather Boushey, an economist at the Center for American Progress, a non-profit think tank in Washington, D.C., “We need to see job growth break above 300,000 a month and stay at that level for many months before the unemployment rate will begin to come back down.  Today’s report provides a number of data points that point toward caution in interpreting the data positively in anticipation of that level of jobs growth returning anytime soon.  The average hours worked for production and nonsupervisory employees was 33.6 hours per week in April, the same as in March.  This remains below the 2000s recovery peak of 33.9 hours per week, and far below the late 1990s peak of 34.6 hours per week.  At the same time, employers shed 2,300 temporary workers, which either means they are hiring permanent employees or they are no longer seeing an increase in demand.

Home Delinquencies Fall; Foreclosures Rise

Tuesday, December 6th, 2011

Fewer borrowers currently are delinquent on their home loans, a Mortgage Bankers Association (MBA) report shows.  Curiously, new foreclosures are rising in states like California.  This is evidence that the nation still must endure significant pain before the housing crisis finally comes to an end.  According to some analysts, the nation is only halfway through the wrenching grip of the foreclosure epidemic.  That’s reflected in the housing market, where sales and prices continue to sag despite record low interest rates.  Five years after the crisis began, 7.99 percent of all mortgages were behind by at least one payment in the 3rd quarter but not yet in foreclosure.  Nevertheless, that’s down by nearly half a percentage point from the 2nd quarter and more than one percent when compared with last year.

The percentage of American mortgages that were somewhere in the foreclosure process at the end of the 3rd quarter was 4.43 percent, a slight increase over last year.  The rate of homes in foreclosure was highest in the East and Midwest that route residential repossessions through the courts, with Florida at more than 14 percent and New Jersey at eight percent.

Rather surprisingly, new foreclosures rose to 1.08 percent of all loans from 0.96 percent in the prior three months, according to the MBA. The rate had been declining since the 3rd quarter of 2010, when regulators began investigating robo-signing.  Some of the nation’s largest banks temporarily halted foreclosures while they addressed claims of flaws in their court documents.  The moratoriums clogged the entire foreclosure pipeline as banks investigated their procedures, said Patrick Newport, an economist at IHS Global Insight.  “Banks are starting to speed up the process now that they’ve cleaned up their paperwork,” Newport said.  “We’re seeing the backlog begin to move.”

Unfortunately, the improvement may be short lived.  For the 4th quarter, the pace probably will slow to 2.3 percent, according to the median estimate among 86 economists surveyed by Bloomberg.  The pace likely will slow to two percent in the first three months of 2012, according to the estimates.  “While the delinquency picture changed for the better in the 3rd quarter, the foreclosure data indicated that we are not out of the woods yet and that the issues continue to vary by geography,” Michael Fratantoni, the Mortgage Bankers Association’s vice president of research and economics, said.

“That’s really just reflecting the modest improvement we’ve seen in the economy broadly and the job market in particular,” Fratantoni said. “Job growth is not what we want it to be, but it’s been good enough to keep the unemployment rate at least level and that’s been beneficial here with fewer people falling behind.”

“While foreclosure activity in September and the 3rd quarter continued to register well below levels from a year ago, there is evidence that this temporary downward trend is about to change direction, with foreclosure activity slowly beginning to ramp back up,” said James Saccacio, chief executive officer of RealtyTrac.  “Third quarter foreclosure activity increased marginally from the previous quarter, breaking a trend of three consecutive quarterly decreases that started in the fourth quarter of 2010,” according to Saccacio.  “This marginal increase in overall foreclosure activity was fueled by a 14 percent jump in new default notices, indicating that lenders are cautiously throwing more wood into the foreclosure fireplace after spending months trying to clear the chimney of sloppily filed foreclosures.”

Foreclosure were filed on 214,855 U.S. properties in September, a six percent decrease from August and a 38 percent decrease when compared with September of 2010.  September marked the 12th consecutive month where foreclosure activity decreased on a year-over-year basis.

A report issued by the Center for Responsible Lending found that 6.4 percent of mortgages created between 2004 and 2008 ended in foreclosure.  Another 8.3 percent of mortgages are at “immediate, serious risk.”  According to Fratantoni, “Given the pace of foreclosure sales — about one million foreclosure sales a year — it’s a three- or four-year process to get it back to a more typical level of foreclosed properties.”

The refinance share of mortgage activity fell to 77.3 percent of total applications from 78.6 percent the previous week.  The adjustable-rate mortgage (ARM) share of activity increased to 6.1 percent from 5.8 percent of all applications.  In October, 50.6 percent of refinancing applications opted for fixed-rate 30-year loans, 28.8 percent opted for 15-year fixed loans and six percent went with ARMs.  In terms of applications for home purchase mortgages, 85.5 percent were for fixed-rate 30-year loans, 6.9 percent for 15-year fixed loans and 5.9 percent for ARMs, the lowest share of that vehicle for purchases since January.

Spain’s New Financial Hit: S&P Downgrades Its Credit Rating

Tuesday, November 15th, 2011

Standard & Poor’s slashed Spain’s credit rating to AA-, three steps beneath the highly desirable AAA, underscoring the challenges facing Europe’s major powers as they meet G20 counterparts over the eurozone debt crisis.  S&P, whose move mirrored that by fellow ratings agency Fitch, cited high unemployment, tightening credit and high private-sector debt.  Spanish 10-year government bond yields climbed slightly in response, although they are still nearly 60 basis points lower than those of Italy.

“Despite signs of resilience in economic performance during 2011, we see heightened risks to Spain’s growth prospects due to high unemployment, tighter financial conditions, the still high level of private sector debt, and the likely economic slowdown in Spain’s main trading partners,” according to S&P.  Spain’s Economy Minister Elena Salgado noted that there would be some margin for maneuver this year thanks to about two billion euros raised by an auction of wireless frequencies and lower interest payments.  “Interest payments by the central government will be at least two billion euros below budget.  So the combined effect of the spectrum auction and lower interest payments will mean we have a margin of 0.4 percent (of GDP)” Salgado said.

S&P took note of Spain’s “signs of resilience in economic performance during 2011” but saw “heightened risks” to the country’s prospects for growth.  Elevated unemployment, tighter financial conditions, and an external debt-to-GDP ratio of approximately 50 percent and the likely economic slowdown of Spain’s main trading partners are the downgrade’s primary causes.  S&P noted that the “economy” variable in its credit-rating equation was responsible for the downgrade.  Spain’s GDP, according to S&P, will likely grow about 0.8 percent in 2011 and nearly one percent in 2012, weaker than S&P’s 1.5 percent estimate made in February.  S&P said that Spain is still in danger of another downgrade if the situation deteriorates.  According to their downside scenario, “We have also adopted a downside scenario, consistent with another possible downgrade.  The downside scenario assumes a return to recession next year, partly as a result of weaker external and domestic demand, with real GDP declining by 0.5 percent in real terms, followed by a weak recovery thereafter.  Under this downside scenario, the current account deficit would decline, but the general government deficit would remain above 5.5 percent of GDP, at odds with the government’s fiscal consolidation targets.”

Investors currently are focusing on“whether European governments can forge a political solution to the sovereign crisis,” said Guy Stear, Hong Kong-based credit strategist at Societe Generale SA.  The longer-term question is “whether austerity plans will work,” he said.

S&P pointed out ongoing challenges facing Spain. “The financial profile of the Spanish banking system will, in our opinion, weaken further, with the stock of problematic assets rising further,” according to S&P analysts.  Spain is being held back by “uncertain growth prospects in light of the private sector’s need to access fresh external financing to roll over high levels of external debt amid rising costs and a challenging external environment.”

Simon Denham, the head of Capital Spreads, noted that “S&P and Moody are working overtime at the moment downgrading bank after bank and European country after European country which reminds us of the dangerous situation that the eurozone is in.  However, as mentioned, the overriding theme that something will be done to sort the mess out is keeping equity markets afloat and the FTSE remains just above the 5,400 level at the time of writing.”

Steven Barrow, currency strategist at Standard Bank, offers this perspective.  “The move follows a similar downgrade from Fitch last week and hence does not have a huge shock factor for the market.  Nonetheless, it clearly questions the markets ability to continue with the more optimistic tone towards the debt crisis that seems to have been reflected in the euro recently – although not necessarily in the bond markets.”

 

Catalina Parada, Marketing Consultant, is Alter NOW’s Madrid correspondent.