Slowing Data or Economic Rebound?

Its funny how these headlines all arrive at the same time:  I came across 3 items this weekend, which taken together make you go hmmmm.

In the order they arrived:

Wachovia – Outlook 2006

Job Growth Slows In Sign Economy Might Be Cooling

Bush, Other Officials Take to Road To Tout U.S. Economic Prospects

Let’s start with the Wachovia piece — a mainstream bulge bracket Wall Street firm (Over the years, Wachovia has absorbed Prudential and First Union).

In his Outlook 2006 year-in-preview, Chief Equity Strategist Doug Sandler included this chart:

click for larger graphic


courtesy of Wachovia

That reflects an across the board slowing in most key sectors. Job growth slowed in December, a sign the economy may have lost some steam, but the labor market was still healthy enough for wage growth to pick up. This past week also saw a slow down in job creation and manufacturing activity — both unexpected developments in

At the same time, the White House has begun Touting U.S. Economic prospects:

"President Bush traveled to Chicago to talk up what he views as America’s rosy economic future. To make sure no one missed the point, the White House dispatched 23 other administration officials to do the same thing around the country.

The extraordinary traveling shows were aimed at closing what the White House views as a troubling disconnect between the robust U.S. economy and many ordinary Americans’ wariness. That is especially worrisome to Republicans as they head into a congressional election year when jobs, immigration, health care and pensions are likely to be big issues . . .  But as their itineraries suggested, there are still a lot of sources of concern, despite strong growth and employment numbers."

The disconnect between official spin and consumer uneasiness may be a key for how strong the economy really is, and the prospects for the stock market. 

One last, related item: Mike at Melduke points out some oddities in the hours worked in December; Looking at the longer term chart of index of aggregate weekly hours index, it appears that hours worked keeps rising:

click for larger charts

25 years


5 years 


I am having a hard time wrapping my head around this: Given the huge productivty improvements we have seen over the past 10 years, why are hours worked in the U.S. going up?

Intriguing . . .

Wachovia – Outlook 2006

Job Growth Slows In Sign Economy Might Be Cooling
THE WALL STREET JOURNAL, January 7, 2006; Page A3

Bush, Other Officials Take to Road To Tout U.S. Economic Prospects
THE WALL STREET JOURNAL, January 7, 2006; Page A4

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What's been said:

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  1. Abobtrader commented on Jan 9

    “Given the huge productivty improvements we have seen over the past 10 years, why are hours worked in the U.S. going up? ”

    This may help to explain what commentators call the ‘jobless recovery’. Hiring new workers can be quite costly, especially if firms are not sure about the sustainability of an economic recovery. Instead, firms may prefer to capitliase the extra productivity of existing workforce. Indeed, perhaps the firms themselves are playing a hand in improving productivity by making their workers work harder and faster.

  2. D. commented on Jan 9

    The productivity calculation only accounts for something like 50% of sectors. For example, a manufacturer might outsource some work and become more efficient but the service provider with lower margins might not enter the equation.

    The productivity number is a farce. Also, it is correlated to liquidity and we’ve had a lot of that in the last few years.

  3. spencer commented on Jan 9

    The growth rate of hours worked has only been about 1.5% this recovery, or about half the historic norm in recoveries.

  4. me commented on Jan 9

    Abotrader is right. Especially for service firms like IBm that convert and classify everyone as “management” and discontinue paying overtime for those hours worked.

  5. Matt commented on Jan 9

    Some anecdotal evidence that supports the official data:

    As a common IT worker in the midwest, my pay dropped in 2002 by 25% and has remained flat since then. Asking for a raise is a joke, because my job is now being considered for offshoring. I’m working more hours now to increase skills in a vain attempt to remain employed at the same level. My current employer is profitable and its stock is at its 52-week high.

    My only alternative is to start one of those thriving “small businesses” that our president likes to brag about in his speeches–in which I will likely earn about 25-75% of my current income.

    My situation matches the official numbers and forecasts pretty well, I think.

  6. howard commented on Jan 9

    spencer, you seem inordinately well-informed about these kinds of data, so a couple of questions: where is the hours worked data derived from? and is there a source for assessing per-cap hours worked?

  7. Mr. Econotarian commented on Jan 9

    Yet the U.S. unemployment rate is lower and real GDP growth is higher than most OECD countries. This is because the U.S. has more economic freedom.

    If you want higher economic growth, we need to enhance economic freedom more through reducing government spending and regulation. Reduce spending, end Social Security, stop expanding Medicare, and stop fighting wars. (If you really want to see some growth, end the drug war and privatize education)

  8. Algernon commented on Jan 9


    There is nothing in that article refuting Mr. Econotarian. Indeed, you merely make the case that this recovery has been relatively weak in terms of job creation.

    This is actually in line with Mr. Econotarian’s thinking because we are following in the footsteps of the Europeans. The burden of gov’t has grown considerably: Galloping increases in spending, increased regulation, the increasing burden of unbridled litigators suing because the coffee is too hot. All of these contribute to our losing struggle to compete in manufacturing productivity with the Asians–along with our cultural disinclination to pursue engineering & science degrees.

    Still Mr. Econotarian is right about why we are still somehat better off for now than the Europeans & what we should do.

  9. John commented on Jan 10

    Many non-hourly employees routinely work 50 to 60 hours per week. They make no extra pay, thus “productivity” soars.

    For these people, their quality of life deteriorates. Adding insult to injury, after years of hard work and extra time donated to their companies they often have their positions eliminated (their jobs perhaps shifted overseas or simply merged onto a survivor’s).

    Meanwhile, executive compensation soars to obscene levels. Business deteriorates into a “what’s-in-it-for-me” attitude. All of this potentially portends grave implications for American society.

  10. kharris commented on Jan 11


    I think if you smack the aggregate hours data on the same chart with GDP, you’ll get a picture of how productivity works out. (You knew this, of course.) That big drop in hours overlaps both with a period of contraction in output and a period of growth, falling longer than output fell. Aggie hours have surpassed the prior high, but by far less than GDP. The wedge, of course, is productivity. None of this addresses whether hours are understated or productivity overstated, since hours, GDP and productivity are a closed system. Fudge one and the others will adjust to maintain consistency.

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