March 04, 2004,
The world is allegedly on hold as it waits for Friday’s U.S. jobs report. We’ve been here before, with relatively disappointing results. Yet hope springs eternal, since every other economic statistic has been red hot over the past nine months.
Before the December and January jobs reports, I took the “over” in the pre-announcement betting. Today’s consensus for tomorrow’s report is about 130,000. So fearlessly, I’ll take the “over” again.
There’s a good front-page story in Thursday’s Investor’s Business Daily chronicling the rising trends for job-linked variables such as orders, work weeks, and delivery times. All these suggest new job creation is on the way. Also, in the hard goods sector, commodity indexes have been white hot.
Much of this is China demand-driven; some of it is U.S.-driven. The key point in this is a lack of infrastructure in a sector that hasn’t had much new investment since the mid-1990s. Rising profits and prices will attract new capital and new investment. But someone will have to go to work in order to complete the production process and meet rising world commodity demands.
Wall Street economist Joseph LaVorgna cites the sharp recovery in withheld tax receipts in February to their highest year-over-year gain since July 2001. These daily Treasury reports are “a statistically significant predictor of non-farm payrolls.” From a decline rate of 5 percent in early 2002 these receipts have climbed to a 3½ percent growth rate last month.
Then there’s the debate over the household survey vs. the payroll survey. Over the past 13 months the Labor Department’s household survey shows 2 million more people working even while the payroll survey has increased only 59,000. But the latter does not count self-employed or independent contractors who may have gone to work at lower tax-rates enabling them to keep more of what they earn. You wouldn’t know it from the media, but as a result of more people working the unemployment rate has dropped to 5.6 percent from a peak of 6.4 percent.
One thing we know for sure: The U.S. economy is booming. Outsized profit gains at lower investment tax-rates have produced a boom in business-capital spending. Consumers also keep spending at a relatively steady 3 to 4 percent pace in response to a 3.4 percent gain in after-tax income over the past year. Same-store retail chain sales reached a blowout number for February. Even exports to foreign countries have increased 21 percent in the last twelve months.
Job outsourcing continues, as it has for twenty years. But so does job insourcing. Putting the two together, net outsourced jobs are actually less than they were in the early 1980s. Outsourcing is one of the most overrated arguments around.
Rapid productivity gains from greater business efficiency, automation, and technology applications have temporarily reduced job demands. But in the fourth quarter of last year 4.1 percent real GDP growth finally outpaced 2.6 percent output-per-hour productivity. So non-farm payrolls increased by 187,000. Assuming that productivity levels off around 3 percent, with an expected 5 percent GDP gain, new jobs will be in strong demand.
As the economy hums, jobs will be created. In the past two decades, while the U.S. economy grew by around 3½ percent annually, a net of 38 million new jobs were created.
In Europe, the unemployment rate continues around 9 percent. That’s because old Europe doesn’t produce much at all anymore. But the U.S. is not Europe.
So Friday’s number may well be better than expected. But if not, I’ll still take the “over” for next month’s number.
Larry Kudlow, NRO's Economics Editor, is CEO of Kudlow & Co. and host with Jim Cramer of CNBC's Kudlow & Cramer.