December hiring rose pushing the unemployment rate to its lowest level in nearly three years, suggesting that the US recovery is gaining traction. The economy added 200,000 jobs, double November’s pace and the unemployment rate fell from 8.7% to 8.5%. Although the trend is clearly positive, the hype over the December jobs report exceeds the reality. Job creation is still running at too low a rate to heal the woes of the US labor market and bring unemployment down to an acceptable level. About forty percent of the newly created jobs were temporary holiday season jobs in either retail or courier services and many of those jobs are disappearing as we speak. Also, the US remains vulnerable to setbacks if the European financial crisis deepens and spreads, or if surging oil prices crimp consumers and companies. That is not to say that things aren’t improving. They are, just not quite as quickly as the press or certain stripes of politicians are painting them.
On the positive side, Christmas retail sales appear to have been strong. The press has been harping that retail sales rose only 0.1% in December from November. However, holiday sales – defined as November and December’s retail sales excluding autos, gas and food service – rose about 5% from the year earlier level, to a record high. Many potential December sales were pulled forward into November prodded by retailers offering earlier discounts than usual. Many retailers’ profits took a hit reflecting slow traffic in mid-December followed by heavy discounting to clear inventories. They have created their own problem by training consumers to wait for the Big Sale. In doing so, they damage their margins and will ultimately try to improve them by beating up their suppliers. Suppliers will then beat up Asian factories (if there are any left) who will in turn squeeze paint resin and raw material suppliers. It’s a cycle almost perfectly designed to tamp down potential employment everywhere.
Reports back from The Hong Kong Toy and Games Fair are that it was a sparsely attended and relatively quiet show, although one with heavy international retail traffic. It may have been subdued by Chinese New Year falling earlier this year. I would have preferred more positive reports but at least the reports weren’t negative. Couple that with strong holiday sales and the slowly recovering US economy and I see things remaining status quo. Hiring will continue to improve at an increasing rate as it has since August 2011 but the recovery will be fragile and susceptible to financial woes potentially spreading from Europe, possible oil surges and trouble in the Middle East and general and rampant idiocy and electioneering coming out of all quarters of Washington D.C.
Muddling thru,
Tom Keoughan
