The May unemployment rate ticked up to 9.1% from 9% in April. Incongruously U6, Toyjobs’ favorite employment statistic (which includes part timers and consultants who would prefer full time work) dropped by a tenth of a percent to 15.8. These numbers are just snapshots in time and it’s better to view their trends over a number of months. Should there be a trend toward slower employment growth, I think it will be reversing at about the same time it becomes readily apparent.
First, we should note that government statistics are notoriously inaccurate and will be revised several times before finalized. We also saw an oil price spike which has now begun to abate. Let’s not forget enough seriously crazy weather (tornadoes in Massachusetts?) to make an “endtimer” sound almost rational. Next time you’re at the supermarket remember to stock up on locust repellent.
I think that a good portion of the May numbers can be explained by supply disruptions after the Japanese triple disaster (3/11) especially in the area of auto components. No parts has meant less hours, no hiring, furloughs and layoffs in the huge US auto manufacturing sector which had previously been growing. In April, US economic growth was 0% but if you back out auto manufacturing the number would have been .4% which annualizes to a strong 4.8% (anything over 3% is pretty good). Now we can’t just extrapolate forward like that with any degree of accuracy but ex-autos the US economy was growing at a healthy 4-5%.
It will take Japanese suppliers several months to get up and running at full tilt and unfortunately the period of reduced supply will coincide with the usual summer hiring slow down. In July and August as people work shorter weeks (how much work really gets done on summer Fridays?), take long weekends and extended vacations it becomes difficult to get job candidates interviewed by all the necessary people or even get everyone together in a room to make a decision.
Additional drags on the economy this summer will be the end of QE2 (basically the government buying scads of bonds in order to keep interest rates artificially low) and the end of the Obama stimulus plan (roadwork everywhere).
As a seasonal/cyclical business the toy industry is naturally just a little out of sync. In most of the economy, companies get new budgets in January leading to a jump in hiring. The toy industry is up to its eyeballs in trade shows until March so much of that employment pop waits until then. Toy industry hiring has markedly improved this year but in just the last three or four weeks I have seen an even stronger acceleration in search starts. For small and mid-sized toy companies it’s often not until mid-May that retailers move from “happy talk” and planogramming to actually locking in orders. As toy companies gain clarity in their business outlook they feel more comfortable adding staff that they already knew they needed but were holding off on.
Increased search starts in late May/early June. Should lead to increased hiring in late June and early July. Typically there is a weak patch in search starts during July and in the first half of August. Late in August toy companies seem to suddenly wake up to the fact that the new sales season will begin in October (really before that if you want to get appointments scheduled for the Fall Toy Preview). If they want to make changes to their sales team before that they have to move fast. The reality is that they’re already late to the chase and probably should have started these searches in late July/early August. This next spurt in the toy industry hiring coincides with what should be an improvement in economic and employment numbers for the economy at large as people return from summer vacations and the Japanese supply situation improves.
That’s the plan anyway. Absent tea leaves and chicken entrails it’s all I can offer for now. That forecast will surely change with new information and heightened brainpower the latter of which seems unlikely during the summer months. September certainly feels a long way off for autoworkers and the unemployed but this soft patch should be over quickly so keep on keepin’ on.
Muddling through,
Tom Keoughan
