Reports continue to show that once consumer confidence picks up so will the economy and hiring. Where will the wave begin? Within each of us.

A Look on the Bright Side for Jobs

By Phil Izzo (Source: WSJ.com)

The mediocre growth in the jobs market remains one of the biggest concerns about the recovery, but there may be a light at the end of the tunnel.

The latest signal for concern was a report from payroll giant ADP and forecasting firm Macroeconomic Advisers that showed the private sector added only 42,000 jobs last month. While the number was slightly better than expectations, the level is still relatively anemic in an economy that needs to create more than 100,000 jobs a month just to make up for population growth.

The report also doesn’t include government employment, which is expected to show a significant drag in the official Labor Department numbers to be reported Friday. State and local governments have continued to be stressed by tight budgets, with  a recent analysis showing that more than 500,000 job cuts may be coming over the next two years. Meanwhile, the 2010 Census is winding down and following a huge surge earlier this year, those workers will be falling off government payrolls for the rest of the summer. About 140,000 workers were dropped from Census payrolls from the June to July period.

Government job cuts aren’t good news, but the private-sector numbers provide a better idea of where the labor market is headed. By that metric, there is some room for measured optimism. For one, the 42,000 gain reported by ADP may not translate to such an anemic official figure. The ADP estimate has undershot the official Labor Department jobs number in five out of six months this year by an average of about 100,000. Last month, ADP said the private sector added just 19,000 jobs, compared to an 83,000 gain in the official report.

Meanwhile, other labor market indicators have offered hopeful signs. The Institute for Supply Management employment indexes for both the manufacturing and service sectors were in expansionary territory in July, improving from the previous month.

Economist Joseph LaVorgna of Deutsche Bank points to another potential signal of coming strength. Last week, the Commerce Department reported that business spending jumped 20% in the second quarter from the previous period, up 13% from 2009. LaVorgna notes that in the past there has been a strong correlation between capital expenditures and employment with a one-quarter lag, indicating that the big gains seen in the second quarter may begin showing up now. “Taken literally, the chart [of the correlation between capex and payrolls] implies we will see several million jobs created over the next few quarters. While we are not so bold to forecast such sizeable job gains, we wonder whether there is some upside risk to our slightly above consensus forecast for July private payrolls,” LaVorgna wrote in a recent research note.

To be sure, there are still headwinds for the job market. Claims for unemployment insurance remain stuck at an elevated level, and flat-lining consumer spending — which represents the majority of demand in the U.S. economy — raises questions about how much employers need to hire.

This entry was posted on Friday, August 6th, 2010 at 4:49 pm and is filed under Job Postings, Job Search, Life. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.