More Evidence of a North American Slowdown

June 30, 2010

According to the ADP estimate, private employment increased just 13K in June, about a fifth as much as expected.  The measly rise in June was the smallest since a 3K uptick in February and compares to 51K per month in March-May.  The data bode poorly for Friday’s Labor Department monthly survey.  According to the latter, non-farm payroll jobs as of May totaled 130.57 million, 545K less than a year earlier and 7.381 below the pre-recession peak in December 2007.  A more horrifying comparison results when one compares the current level of jobs to where such would be if they had risen at the long-term pace after 1999.  U.S. jobs climbed by identical 1.84% per annum rates in the 1980s and 1990s.  Had that trend been maintained after Y2K, the United States would have 27.2 million more non-farm workers now than it does. That jobs deficit constitutes about a fifth of the current labor force’s entire size.  It’s doubtful that jobs will return to their long-term trendline before 2050.

Both the Chicago and Milwaukee factory purchasing manager indices fell in June, the former to 59.1 from 59.7 and the latter by three points to 59.

Canadian GDP had sizzled between October and March, rising 6.1% at an annualized rate over the five months.  At the start of the second quarter, however, GDP slid 0.3% at an annualized pace in April.  Retail trade had advanced 8.7% annualized in the earlier five months including a 1.9% non-annualized jump in March but then fell by 1.7% in April.  Industrial production had advanced 11.6% annualized in the preceding five months but dipped 0.1% not annualized in April.  A little more than two months ago, the Bank of Canada released growth forecasts of 3.8% annualized for the first quarter, which turned out too low, and 2.8% for the second quarter, which now appears likely to be too optimistic.

Like most advanced economies, the recoveries in the United States and Canada mostly involved inventory cycle reversals and the direct and indirect effects of policy stimulus.  The support from inventories is inherently temporary.  What hasn’t been demonstrated is that these economies have healed sufficiently to grow without the policy stimulus.  The process of fiscal and monetary policy normalization actually will represent a headwind at the margin.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.

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