Economy

Weekly Economic Wrap: Job Creation Uptick

by Dennis Jacobe, Chief Economist

Job creation improves a little, but consumer spending continues to languish

PRINCETON, NJ -- Even as the equities markets continue to surge, consumer perceptions are unchanged from the prior week and from a month ago -- confirming a worsening trend since early May. And consumer spending remains weak -- down 45% from the same week a year ago. Combined, these trends suggest an even poorer outlook for back-to-school sales than many expect. Still, a two-week improvement in job creation -- even if modest -- provides some hope that the employment picture is improving a little, and that would be a good thing for the struggling economy.

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Economic Conditions

Americans' ratings of the current economy were essentially unchanged last week, with 48% rating the economy "poor," compared to 50% the prior week and 49% a month ago. The percentage of consumers rating the economy "poor" is now about the same as it was a year ago.

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The percentage of Americans rating the economy "excellent" or "good," at 10%, is also essentially unchanged from the previous week and the same as a month ago.

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Economic Outlook

Americans' hopes for the future of the economy have worsened somewhat over the past couple of months. Sixty-three percent of consumers said economic conditions are "getting worse" -- basically unchanged from the 62% of the prior week and only slightly worse than the 60% of a month ago. Still, these consumer expectations are eight points higher than they were a couple of months ago, during the week of May 4-10. On the other hand, they remain much improved in comparison to a year ago, when gas prices were peaking and 87% of consumers said things were getting worse.

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Optimism that economic conditions are "getting better" was also unchanged last week at 32%, compared to 31% the prior week and the slightly better 34% of a month ago. Still, this is down seven points from early May.

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Job Market

Job creation improved slightly to 26% from 25% the prior week, and from 23% two weeks ago. It is also up from 23% a month ago. This two-week improvement, although modest, provides some hope that the job outlook is getting a little better. Job creation has not been this high since the week of May 11-17, and that proved to be a one-week aberration. However, this is tied for the highest level of job creation this year. Of course, these are small changes that could have been distorted by the Fourth of July holiday and the auto industry bailout. Still, this potential beginning of a trend is well worth monitoring in the weeks ahead.

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The percentage of employees reporting their employers are letting people go remains at 26% -- the same as the prior several weeks and a month ago. However, it is good news that at least as many U.S. workers say their employers are hiring as say they are letting people go. This is only the second time this year that this has been the case, and the first time since mid-May.

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Consumer Spending

Consumers reported spending an average of $62 per day in stores, restaurants, gas stations, and online last week. This is essentially flat when compared to the $65 of the prior week and the $64 of a month ago. Because there was a spending uptick in the year-ago comparable for consumer spending ($112), spending is down 45% from last year. This decline in consumer spending continues to imply something of a "new normal" in spending, at least for the immediate term. (Gallup's spending data are based on Americans' self-reports of the total amount of money they spent the prior day on purchases other than a home, a motor vehicle, or their normal monthly bills.)

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Commentary

The recent stock-market surge has been based, at least in part, on a better earnings performance from major U.S. corporations than many had anticipated. In turn, this appears to have been the result of aggressive cost-cutting by America's corporations -- not significant revenue growth. It may be that the current corporate earnings situation means the number of companies letting people go is leveling off and a few companies may actually be adding new employees. Still, the job market is hard to gauge right now with the auto bailouts, the slight increase in housing starts, the state budget conditions, and the summer seasonal hiring patterns. While the slight uptick in Gallup's job-market measures provides hope of a modest improvement in the labor market, hope is all it provides at the moment.

On the other hand, Gallup's consumer spending data continue to show no improvement from the first half of 2009. It is hard to see how there can be a real improvement in the U.S. economy without some significant improvement in spending. Of course, current spending levels may simply be reflecting the "new normal" in consumer spending and saving -- at least for the second half of 2009. If that is the case, the downside risk to the economy and the markets is that many companies that have been hoping for a second-half recovery will feel it necessary to begin another round of cuts. In turn, that would make the hoped-for improvement in jobs temporary at best.

Gallup Poll Daily tracking of the economy will provide new insights into not only consumer attitudes but consumer behaviors in the days and weeks ahead.

Survey Methods

For Gallup Poll Daily tracking, Gallup interviews approximately 1,000 national adults, aged 18 and older, each day. The Gallup consumer perceptions of the economy and consumer spending results are based on random half-samples of approximately 500 national adults, aged 18 and older, each day. The Gallup job creation and job loss results are based on a random half sample of approximately 250 current full- and part-time employees each day. For the total samples of these surveys, one can say with 95% confidence that the maximum margin of sampling error is ±3 percentage points.

Interviews are conducted with respondents on land-line telephones (for respondents with a land-line telephone) and cellular phones (for respondents who are cell-phone only).

In addition to sampling error, question wording and practical difficulties in conducting surveys can introduce error or bias into the findings of public opinion polls.

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Gallup http://www.gallup.com/poll/121805/Weekly-Economic-Wrap-Job-Creation-Uptick.aspx
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