Shell-shocked and recession-weary consumers remained in hibernation for quite a long time while a slow and uneven recovery was fueled by manufacturers who were re-stocking shelves left bare by deep cuts in production and growth in China and emerging markets.
For an economy that is neither manufacturing nor export dependent, it was no surprise that the recovery appeared to be non-existent to the casual observer.
The tide now appears to be shifting in favor of a more robust expansion thanks to an improvement in consumer spending – 70% of GDP – and an acceleration in activity in the broad-based service sector.
Whether its pent up demand from purchases that were put off during the height of the recession and the early stages of the recovery, a gradual improvement in job security or a combination of both, the economic recovery that began in manufacturing is spreading.
From double-dip to rising momentum
Following a lull over the summer, growth resumed in the fall and Q4 data showed a rather impressive jump in activity, as real final sales that were buried in the advanced GDP data grew at the fastest pace since 1984!
And 2011 is off to a fast start as evidenced by strong showings in both manufacturing and service-sector surveys. With the recovery sending out clear signals that it is broadening, growth is no longer dependent on the whims of the narrow and volatile manufacturing sector, which is greatly increasing the odds that the economy is on a firmer footing and is entering a more self-sustaining phase.
Of course, there are still headwinds to the expansion – one only has to look at the somber tone of the housing market, the lingering debt crisis in Europe and tight credit standards. Banks, however, are beginning to loosen up a bit, as evidenced by recent data from the Fed showing that businesses loans are starting to percolate.
Job growth – close but yet so far
We’ve already seen some evidence that ADP is detecting action in the labor market, and the employment sub-components of the ISM surveys are revealing a renewed interest in hiring. Moreover, weekly jobless claims are in a downward trend, though the winter weather is playing havoc with near-term releases rendering them nearly useless at the present time.
The cautiously upbeat outlook in the job market shouldn’t come as a surprise since the historical record over the last 30 years (see chart above) shows that there is a clear link between economic growth and job growth.
The difficulty comes in pinpointing when the government’s nonfarm payroll data will begin to reflect the pick up in the economy, as January's 36,000 rise in payrolls was a major disappointment.
Though some made a gallant attempt to put lipstick on that pig, no matter how you try to spin it, 36,000 is still 36,000.
Though we have a long way to go before the economy makes a sizable dent in the unemployment rate, I'm in the camp that believes meaningful job creation is on the horizon. And when it happens, it will catch most analysts by surprise.
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