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Econ Wrap-Up: Challenger Job Cuts, Trade Deficit, Productivity & Labor Costs

2/5/2015
By Jennifer Coombs

Optimism for the jobs report was not off to a good start as Challenger’s January Job Cuts report gave the first warning sign of serious trouble in the oil patch. The layoff count starts off 2015 with an elevated reading of 53,041; this is the highest reading in 52 weeks and, also, the highest January reading since 2012. The previous two readings in December and November were at much lower levels of 32,640 and 35,940 respectively. The energy sector represents about 40% of all of January’s jobs cuts for a total of 20,193. In the fourth quarter, alone, job cuts in the energy sector were minimal at an average of only 1,330 per month. According to the report, the sector seeing the second largest number of cuts for the month was retail, at 6,699, but most likely can be attributed to downsizing after the holidays.

Next, the jobs market gets another check in the healthy column based on the weekly jobless claims. Initial claims, although up by 11,000, came in at a much lower than expected reading of 278,000 for the week ended January 31st. This maintained the bulk of the improvement from the prior week’s revised 42,000-decline. Now, the 4-week rolling average, down a sizable 6,500 in the week to 292,750, is trending right at the same level as a month ago, and points to another potentially healthy monthly employment report for tomorrow. Lagging by one week, continuing jobless claims were also at healthy levels even though the month-ago comparison is not as positive. For the week ended January 24th, continuing claims rose 6,000 to 2.4 million while the 4-week average is now at 2.421 million and slightly above the month-ago trend. Additionally, the unemployment rate for insured workers is holding steady at a recovery low of 1.8%. We note that there are no special factors in today's report, which gives this report a big positive check mark in our book.

In December, the US trade balance actually widened instead of narrowing as most economists expected. Lower oil prices majorly cut into petroleum exports, resulting in the US trade deficit widening to $46.6 billion from a revised $39.8 billion in November. Economists had forecasted the deficit to actually narrow to $37.9 billion. Exports declined by 0.8% after dropping by 1.1% in the prior month. Imports increased by 2.2% after declining by 1.8% in November. As expected, the deepening deficit was due to the goods excluding petroleum gap which increased to $49.7 billion from $46.3 billion in November. Petroleum imports were up 7.7% while exports decreased by 11.6%. This deeper deficit will ultimately translate to a lower GDP number for Q4-2014. However, the one silver lining is that the import numbers show that demand in still moderately healthy.

Lastly, Q4-2014 concluded with nonfarm productivity growth declining by an annualized rate of 1.8%, this followed a revised 3.7% jump in Q3-2014; expectations were for a 0.2% increase. Unit labor costs increased by 2.7% in Q4, after falling by an annualized rate of 2.3% in Q3 and surpassed analysts’ expectations of a 1.2% gain. Output growth softened to 3.2% in Q4, after a 6.3% jump in Q3, plus compensation growth posted a 0.9% annualized gain after a 1.3% gain the prior quarter. We note that the productivity and labor cost numbers continued to be volatile after the severe weather in Q1-2014 (best demonstrated in the chart below). However, the most important number is probably the year-ago compensation which eased to 1.9% from 2.2% in Q3. The Federal Reserve will ultimately view this as an indication that the labor market is softening.

Jennifer Coombs
Wall Street Strategies

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