Is our Economy Starting to Come Out of the Recession?
Coming into the third quarter of the year, I had forecasted that we would see quite a pop in GDP growth. See the chart below. Now that we are half-way through the quarter, thought I would check-in to see how things are going.
To get a feel for if we are actually seeing Gross Domestic Product (GDP) growth this quarter, I take a look at Coincident Economic Activity indicators. In other words, indicators that are not leading or lagging, but give me insight as to what is actually unfolding now. These indicators include non-farm employment growth, the unemployment rate, average weekly hours of all employees in manufacturing and average hourly earnings of manufacturing employees.
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Non-farm employment grew the first month of the quarter. See the graphic below. Jobs grew by 1.763 million or 1.3% over the month June. This compares with ~200k jobs growth monthly before the pandemic and recession. So that is very robust job growth.
July’s unemployment rate dropped down to 10.2% from 11.1% in June. That’s a .9 PPTs or 8.1% drop over the prior month. So that is confirmatory as to what is going on in the labor markets during the first month of this quarter.
Average weekly hours of all employees in manufacturing is also coincident economic activity indicator that gives us a look into what is currently unfolding in this quarter. See chart below. As you can see from the chart, this indicator is increasing also. Average weekly hours worked increased from 39.0 in June to 39.7 in July. That’s a .7 average hours or 1.8% increase. Again, pointing to growth in GDP in this quarter.
The last indicator that I am going to look at to confirm that GDP is growing this quarter is average hourly earnings of manufacturing employees. From the graph below, you can see that July was the first month of increase in this indicator since the recession began. The labor rate has increased from $28.64 per hour in June to $28.81 in July. That represents a 17 cents increase or .58% increase in average hourly earnings.
In summary, all of these indicators are moving in a positive direction. They are confirmatory that GDP growth has started and we are coming out of the recession. So the focus now in our operations should be on growth. The expansion phase of the business cycle is underway.
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