The Monday Economic Report

December 7, 2009 - Dave Huether, Chief Economist, National Association of Manufacturers

The economic news that came out last week was generally positive. Eight of the 12 major economic reports were positive, although three (factory orders, the Institute for Supply Management (ISM) manufacturing index and productivity) posted slower growth than the prior month. While only two of last week's reports worsened, their significance warrants mentioning.

To see all of last week's indicators, see the Latest Economic Reports section below.

First, the ISM's report on nonmanufacturing business moderated for a second consecutive month in November and fell back below the growth threshold of 50, where it had been from October 2008 to August 2009. While a one-month decline in this statistic does not signal a halt to the emerging recovery, it is a warning that the economy is not improving very much in the fourth quarter.

Second, the International Council of Shopping Centers reported that U.S. sales at chain stores (apparel stores, department stores, drug stores, discount stores and wholesale clubs) fell by 2.5 percent in November, the largest monthly decline since last December. Following very sluggish growth in October, last week's report shows that consumer spending two-thirds of the way though the fourth quarter is very weak. Given the fact that consumer spending is 70 percent of the overall economy, a deceleration in the fourth quarter from the 2.8-percent growth attained in the third quarter seems likely.

While still negative, the most encouraging report that came out last week was Friday's employment report, which showed that payroll employment fell by a surprisingly mild 11,000 in November. At the same time, the unemployment rate edged down to 10 percent from 10.2 percent in October. Still, the labor market remains very weak, evidenced by the fact that when those workers who have left the labor force or are employed on a part-time basis for economic reasons are included as unemployed, the unemployment rate stands at an alarmingly high 17.2 percent.

Nearly every sector of the economy reduced jobs last month, although not at the pace of prior months. The one area of significant increase was in temporary employment, which rose by 52,000. While this increase in temporary workers is usually a good predictor of permanent employment gains in coming months, the fact that private sector jobs outside of temporary employment fell by 70,000 last month shows that employers are not confident enough in their business outlook to expand their workforce.

Going forward, the economy still faces significant headwinds, which will likely result in sluggish economic growth during the next few quarters. To view the NAM's latest economic outlook, which was sent to the White House last week during it's Jobs Summit, please click on the following link: December Economic Outlook.