Jobs and Services: Our Crab Economy?

I am running out of ways to describe our economy. So today I am calling it a crab economy because it is still wandering about sideways. Today’s reports both support this view.

First: employment.

The monthly report from ADP, the payroll processing business, tells us that the private sector added 162,000 jobs in September. This is entirely consistent with what we’ve been seeing, and is nowhere near good enough. Still we ought not to begrudge progress albeit it pathetic. It’s better than the alternative. It is a little troubling, but not too surprising, to see the prior two months be downgraded by a combined 29,000 jobs. Unsurprising because data is always being updated in light of better information, and all the signs over the summer were that the economy sputtered a bit. So any revision was likely to be downwards not upwards.

Thus far in 2012 the private sector has added about 171,000 jobs a month, up from 2011’s 138,000 average. So progress has been made. The problem, as we all now know, is that this progress is insufficient to bring down unemployment when the population is growing almost as quickly.

The service sector has been a little more robust than manufacturing in recent months, so it is not surprising to read that 144,000 of the total new jobs in September came in the services.

Which brings us to today’s second major report: the Institute of Supply Management’s index of activity in service industries. The index rose again in September, reaching a six month high of 55.1%, up from 53.7% in August and is the thirty-third straight month marking expansion rather than contraction [any reading over 50% suggests expansion]. Service industries tend to be more local and thus not as susceptible as manufacturing to global business conditions, so the sector has been a more reliable source of growth than manufacturing for some time. Also, service businesses employ about 80% of all workers, meaning that trends in that sector are vital to the overall health of the economy. Nonetheless services are not immune to bumps in the trend: the ISM index reached this same level in February before flattening out and dropping slightly – but still hovering above the expansionary 50% mark – for a while. This month suggests a repeat of that pattern is in store. The report suggests that future hiring will lessen and thus drag the index down a little later this year or early next.

Neither of theses reports forces us to alter our view of the economy. It is still wallowing about. It is still recovering slowly. It is still in need of a boost. It is moving more sideways than up. Hence the crab analogy.

One last thing: the ADP numbers recently have been slightly higher than the government’s job report due to the steady loss of government jobs at the state and local level. So today’s ADP report of 162,000 new private sector jobs suggests an overall growth of between 120,000 and 140,000 new jobs. Not good enough by far. But better than nothing.