Fisher Investments Editorial Staff
Market Cycles

Even Mules Budge

By, 01/06/2011
 

Story Highlights:

  • US unemployment remains stubbornly high despite improvements in other economic areas.
  • The latest ADP report showed US payrolls increased by 297,000 in December, led by the services sector and by small and medium-sized companies.
  • The latest manufacturing and services data show strong consumer demand driving output and new orders—supporting the case for jobs growth.
  • Labor improvements are another piece of evidence supporting ongoing economic growth.

 

In the States, unemployment remains stubbornly high despite improvements in other economic areas. But even mules budge with the right forces. It would seem for jobs, those forces are continued economic growth and increasing business confidence. 

The US Department of Labor's official unemployment reading will be released Friday, but Wednesday's ADP Employer Services report showed US payrolls increased by 297,000 in December. Seasonal hiring likely gave the numbers a small boost, but the sharp rise greatly surpassed expectations and was the biggest in the report's history (since 2000). The services sector led the hiring charge and added 270,000 workers—the data went hand-in-hand with the latest ISM report showing the sector grew at the fastest pace in four years in December. 

Of note, small and medium-sized companies added the most workers to payrolls. Business lending, often a precursor to business expansion, increased last year—however, banks mostly favored large and medium-sized companies. Small companies still faced some difficulties in securing new loans, but the recent spike in hiring suggests lending to these firms may be increasing—something we expect to continue this year—and that the recovery is becoming more broad-based. 

Employment is historically one of the last areas to recover following recession, lagging other economic indicators. Hiring new employees is expensive, and companies with cautious outlooks are more likely to stretch the capabilities of existing employees and machinery. But when companies see current or future activity overwhelming capacity, it's time to post to job boards and bring on additional help. The latest manufacturing and services data show strong consumer demand driving output and new orders—supporting the case for jobs growth. In turn, a growing working population further contributes to consumer demand. 

Labor improvements are another piece of evidence supporting ongoing economic growth. The unemployment rate will likely fall some this year, but it wouldn't surprise us if it didn't drop precipitously. Pessimists will use it as one factor bolstering their negative sentiment, but elevated unemployment isn't a sign the economy is still "sick"—after all, the economy's been recovering this whole time despite it. Talk about stubborn.

*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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