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Economic Activity Indicator: Production or Jobs?

“Davidson” submits:

Few single data series reflect economic activity as well as the Department of Commerce Auto & Light Truck Sales data. The current sales recovery pace is the strongest since 1982 with the Jan 2011 level reported at a 12.492mil annual vehicles sales rate. That this is occurring even with employment ~10mil below the historical full employment levels reflects the fact that there are still 139mill+ employed in the US who need daily transportation. Vehicles need to be replaced no matter what the state of the economy and a recession will not stop those who are working from making a decision on what is a necessity in the US. Although market fears may cause the employed base to postpone such a decision, the decision cannot be put-off indefinitely.

Different in this recovery is the pace of job recovery. While precise information is not readily available, the fact that GM’s employment levels have been reported to have fallen from ~280,000 to ~85,000 without impacting manufacturing says much. This recession has witnessed a significant improvement in productivity through “Lean” methods and has resulted in US manufacturing becoming globally competitive. “Lean” needs fewer employees for the same level of production. This was necessary if the US was to reverse the long term decline of manufacturing employment. There are signs that this may have occurred, but if this is so it is early days.

As a result of “Lean”, employment data is not likely to provide the historical signals most expect. One will have to rely on production and sales data series to gauge economic activity levels. Retail sales, Auto & Light Truck Sales, Industrial Production and other series reflect an economy in recovery and perhaps a recovery much stronger than most realize.

The current earnings reporting season as of Jan 28th, 2011 reported by Bloomberg reflects 71.7% of companies reporting earnings above market expectations-see the following table.

Q4/10 Q4/09
Positive Surprises: 147/205 = 71.7% 359/497 =72.2%
0% Surprises: 17/205 = 8.3% 51/497 =10.3%
Negative Surprises: 41/205 = 20.0% 87/497 =17.5%

The Bloomberg report can be accessed via the link: http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=asyZoHWaYPa4