This Week’s Economic Update, February 6, 2023

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This past week we again celebrated Abusing Ground Hogs.  Where is the outrage of yanking an animal out of its normal slumber to see if it sees its shadow?  The real show here would be to not drug the ground hog and have these idiots reach into the den with an unprotected hand to pull them out.  From my experience with wildlife, you would do that once and forever after be referred to as Stumpy or Lefty.

The jobs report on Friday was a barn burner.  New jobs in January totaled 517,000.  After reading the report I would adjust that down by 35,000 to 482,000 as 35,000 government workers at various government institutions returned from a strike in January.  Another issue to be aware of is that the Bureau Of Labor Statistics used this month to do what they are calling a “Benchmark Adjustment”. I will be honest, in reading the full report, I can not reconcile all the numbers. The big question is what is this fudge factor and how much is it? In cross referencing other reports as well as personal observations, I personally believe there was average hiring in January but nothing as strong as what the BLS is saying.  

On December 31, 2022 there were 11 million open jobs in the US, with a large amount of them in the leisure and hospitality sector.  Obviously all the openings have not been filled, but based on some other indicators, it does appear that employers are still looking for workers, however, the pool is shrinking.  Short term unemployed persons total 1.9 million right now.  Long term unemployed who are seeking jobs is down to 1.1 million.  That would leave just under 9 million openings in a perfect world where all applicants were matched with each position and qualified for that job.  The labor participation rate improved. The bulk of this increase appears to be retirement related, not more hiring. Regard this as a math issue, the denominator decreases as the numerator stays the same.

We currently have 5.3 million not in the job force.  This includes the retired, the unable to work and those that are just not interested in working.  In the past year, 1.4 million who were looking for work decided not to continue looking for work, they dropped out completely in the past four months.  These numbers have not changed much since October 2022 in spite of pending government payment cuts associated with the pandemic.

Average wages climbed .3% in January, an average equal to 3.6% annually.  Note that most raises for the year are given in January so this may be skewed.  The rest of the first quarter will tell a better story on this particular indicator.

The average work week grew in terms of hours in virtually every category.  It is interesting that the average work week in manufacturing is now 40.5 hours.  This is in spite of virtually every indicator showing manufacturing activity is declining.  My contacts have all have shared that they are working overtime as well as actively looking to hire. This again points to the BLS number being overstated.

That brings us to the ISM report for January.  As expected, it came in lower, 47.4 compared to 48.4 in December.  Manufacturing has contracted for two consecutive months now.  Embedded in the report were indicators that a recovery is not in the near term.  New orders were down to 42.5%, backorders are contracting at a slower level, but still contracting.  Export orders are contracting, but with the strong dollar inhibiting trade, this is no surprise. Production has slowed due to supply issues in limited areas but is expected to rebound this Spring. The odd duck here is that employment continues to expand.  Comments from business owners indicate they want to continue to hire as the head counts will be required when demand turns around.  This is expected by mid-year.  For bankers, this means checking with your clients about their Operating Expense Margin and how that will impact bottom line income.

Overall comments from participants reflect that reasonable economic conditions exist, a soft first quarter with things picking up around May or June.

Please note, Manufacturing is about 12 to 13% of the total economy.  The real mover and shaker is the service sector.  The ISM Service Report bounced back nicely from the December number of 49.2 to the January level of 55.2.  Overall business activity rose from 53.5 to 60.4.  While the housing industry is still impacting the construction as well as financial services, other areas all seem to be doing well. 

An interesting point in the Services report relates to employment.  The employment number bumped up but not by much.  Comments in this category were very clear, employers can not find qualified labor.  The supply of willing job applicants is thin.  This is likely a leading indicator that wages will have to rise significantly before the open positions are going to be filled.  This appears to be a big lift based on the jobs report, there is just not enough trained, employable workers on the bench to hire.

Have a great week, and please, leave the poor ground hogs alone.



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