March 4, 2014
LIA Monthly Economic Report: March 2014
By: Dr. John Rizzo
Evidence of slower growth in the US economy emerged during the past month. Most notably, 4th quarter 2013 GDP was revised downward from 3.2 percent to 2.4percent. Other economic news was decidedly mixed, creating uncertainty as to whether the slowdown in activity reflected a change in fundamentals or the harsh winter conditions throughout much of the US. Jobs added and retail sales were both below expectations in January, and there was evidence of a decline in consumer and homebuilder sentiment about current economic conditions. But there was offsetting positive news as well. New home sales reached their highest level in more than 5 years. Consumer credit card use increased, a good sign for consumer spending. And jobless claims remained at a level consistent with expansion in the labor market, while inflation stayed in check. Despite the conflicting economic evidence, there is reason to believe that the negative news reflected severe weather conditions to a significant extent, and that growth and economic recovery will proceed at a healthier pace in the spring.
The National Economy
The U.S. Labor Market
Only 113,000 jobs were added in January, well below expectations of 180,000. Construction added 48,000 jobs in January, more than offsetting December declines, while manufacturing added 21,000 jobs. Leisure and hospitality employment increased by 24,000 jobs. Retail trade lost 13,000 jobs and the Federal Government, 12,000. The unemployment rate ticked down slightly to 6.6percent. Once again, there was a substantial divergence in the Labor Department''s jobs gains reports and gains reported by payroll processor ADP, which estimated 175,000 jobs added. Once source of the divergence is that the Labor Department includes public sector jobs, which declined in January. However, the magnitude of this decline does not appear to be large enough to account for all, or even most, of the discrepancy. Despite the week growth in jobs, jobless claims remained consistently below the 350,000 threshold which is consistent with continued expansion in the labor market. Weekly hours worked for private nonfarm employees held steady at 34.4 hrs. while their hourly earns rose 5 cents to $24.21. Year-over-year earnings rose by 46 cents, or 1.9 percent.
The U.S. Consumer Market
Retail sales declined by 0.4 percent in January, the largest drop since June 2012. This pattern likely reflected severe weather conditions and weak growth in jobs. The expiration of emergency jobless benefits for the long-term unemployed, which expired on December 28, may also have contributed to this decline.
Personal income rose by 0.3 percent in January, also exceeding expectations. Consumer credit-- which includes credit card use and borrowing for student and auto loans-- rose substantially in December 2013 to $18.8 billion, far exceeding expectations of $12 billion. Consumer credit rose by 6.2 percent for all of 2013.The decline in retail sales was led by a sharp drop in auto purchases. Removing volatile sales of automobiles, gasoline, building materials and food, so-called core sales still fell by 0.3 percent, substantially below expectations of a 0.2 percent increase. However, consumer spending on services spiked by 0.9 percent in January and as a result, overall consumer spending rose by 0.4 percent, exceeding expectations.
The Conference Board''s index of consumer confidence presents a complex picture that must be interpreted carefully. The overall index fell modestly in February from the previous month. This decline reflected a more pessimistic outlook for jobs, earnings and business conditions. However, consumer confidence about current economic conditions has improved for the fourth consecutive
month and is at their highest level in almost 6 years. Thus it appears that, while consumers believe economic conditions have been improving, there remains uncertainty and concern about the future.
The cost of consumer goods remained in check. The Consumer Price Index (CPI) increased by just 0.1 percent in January 2014 relative to December 2013. And year-over-year inflation remained quite low at 1.6 percent.
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