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Spring Optimism/Summer Stall Dynamic Creeping Back Into Economic Forecasts

In both 2010 and 2011, promising economic indicators in the late winter and early spring have led to a downturn by the summer, dashing those hopes. I find it amusing in a time of a warming planet that this has, in every single year, been partially attributed to an “unusually warm winter.” Maybe that warmth isn’t so unusual anymore.

The point is, that has been the dynamic; decent economic reports undercut by events later in the year. And while we cannot fully call that yet for this year, there’s clearly been a slowdown from some of the more robust reports of February and March.

Amid a spurt of economic data due for today and tomorrow, a few nuggets stand out. Tomorrow we get the employment report for May, and one early warning indicator to that, the ADP employment report, shows a fairly soft increase in jobs:

Employment in the U.S. nonfarm private business sector increased by 133,000 from April to May on a seasonally adjusted basis. The estimated gain from March to April was revised down modestly, from the initial estimate of 119,000 to a revised estimate of 113,000.

Employment in the private, service-providing sector increased 132,000 in May, after rising a revised 119,000 in April. Employment in the private, goods-producing sector increased 1,000 in May. Manufacturing employment dropped 2,000 jobs, the second consecutive monthly decline.

This was about 20,000 jobs below consensus, and the manufacturing drop is particularly troublesome. ADP hasn’t done the best job at predicting the Bureau of Labor Statistics numbers, but it’s worth noting that it missed the mark.

Next, first-time jobless claims ticked up to 383,000. The four-week moving average also jumped to around 374,500. These are still half-decent numbers, but moving in the wrong direction.

Also, GDP for the first quarter of 2012 got revised down to 1.9%. A key purchasing index out of Chicago dropped. And layoffs increased year-over-year, mainly because of big job cuts at HP.

Things aren’t pointing to a recession or anything, but there’s been a noticeable slowdown from late winter/early spring. We still have elevated unemployment, and these kinds of figures won’t put a dent in them. Never mind the fact that long-term interest rates for Treasury bonds are at ridiculously low levels, and the government isn’t capitalizing on them by spending more money to boost the economy. The bond markets are begging for this step, but it’s not happening.

I’m getting a serious spell of deja vu. The green shoots are turning brown, again.

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David Dayen

David Dayen