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Recovery Indicators Retreat from Their Prior Month Surge

By on October 7th, 2013

The recovery indicators took a step back last month, but they had surged in the prior month, so let’s call this a “regression to the mean.” There are some signs that the economy is a little better than it was, but it’s still in the range of less that 2.5% growth. That means that recession possibilities are higher than they should be.

The NASDAQ, despite volatility toward the end of the month, still had a 3.2% gain. Because of the government “shutdown,” economics statistics websites are no longer available. We did update the proprietors’ income data with a monthly data series that is a little less reliable since our preferred quarterly report from the Bureau of Economic Analysis was not available. Where did we get this one? From FRED, the data site managed by the Federal Reserve Bank of St. Louis. Since the Federal Reserve is independent, it’s not affected by the shutdown for access to released data. Those data series, if they originate from a US government agency, are not being updated. Until then, we will rely on data from independent sources, like the Institute for Supply Management, where we get four of our indicators, to get a picture of the economy.

Here’s the recovery indicator chart (click to enlarge):

recovery tracker 100313

As far as unemployment data, the report issues by payroll processor ADP was disappointing, so we assume that the same trends that have been dogging the employment data were still there in the report that would have been released last Friday. That is, slow deteriorization of the labor participation rate and a possible improvement in the headline unemployment rate number. In other words, more of the lackluster movement that seems more entrenched every month.

If the part-time worker thesis that is widely bandied about as an effect of the implementation of the ACA plays out, unemployment will improve significantly, but hours worked will decrease markedly. That has not happened yet. The percentage of part-time workers represented in the employed workforce is still in line with historical levels. The adjustment to the ACA started long ago, with the lack of aggressive hiring of all workers. Most all businesses, especially large employers, plan their workforce needs in advance. Large numbers of workers cannot be hired or fired quickly because of practical aspects of recruitment (finding candidates, interviewing, selection, training, etc., or the reassignment of workers to other positions in the case of downsizing) and the legal ones (regulations or legal agreements regarding notices for dismissal and other factors). Businesses were well aware of the consequences of the ACA for quite some time, and any adjustments to workforce size as the effective date becomes closer are minor in the grand scheme of things. This is why labor participation is shrinking, and the number of workers is actually relatively stagnant, even though the headline unemployment rate may show occasional improvement.

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  1. 2 Responses to “Recovery Indicators Retreat from Their Prior Month Surge”

  2. By GaryAmpulski on Oct 8, 2013 | Reply

    It is truly amazing how these numbers can be “managed” to serve a purpose. Thank you for sorting this out for us. Your column is a real helpfull, educational and as entertaining as an episode of CSI.

    Many economists are predicting another recession in the second half of next year based on some indicators and historical trends. Can you provide your views on this and what our industry should be doing now to weather that storm (albeit tropical depression) if it arrives?

  3. By Dr. Joe Webb on Oct 8, 2013 | Reply

    Do we really need another recession or is <2.5% growth and a stunted employment market enough? Some of the major data series have yet to indicate the full recovery that real GDP does. I’m not in the recession camp at this time, but the chances of it are always greater when you have this many problems. We’re still in a +1.5% to +2.25% economy that prefers efficiency over expansion, and that doesn’t help anyone.
    The advice to the industry is still change your business, don’t hunker down with the old one. If you’re going to get involved in M&A do it with a partner that expands into new markets, not a partner that adds to “more of the same.”