New Unemployment Claims at 2-1/2 Year Low

No one can really deny that the job market is really starting to kick in now.

This past week provided economists a very positive jobless claims report for the February 5 week. It showed a steep 36,000 decline in initial claims to 383,000 for the lowest total in 2-1/2 years.

The Labor Department -- which released the report -- suggested in their comments that the latest level is likely free of seasonal or weather related distortions.

The four-week average, which helps even out weekly distortions, fell a very substantial 16,000 to 415,500.

Adding further fuel to the positive jobs report was the news on Friday that the Reuter's/University of Michigan's Consumer sentiment index continues to improve and is approaching its mid-year 2010 recovery high.

The two positive reports added an exclamation point to a week that begin by showing retail sales numbers skyrocketing into February.

Retail Sales Likely Skyrocketing into February

According to the ICSC-Goldman's retail sales report on Tuesday, same-store sales skyrocketed in the February 5 week, up 2.2 percent.

It was the largest weekly gain since the Easter surge of last March.

The year-on-year the rate jumped nearly one full percentage point to plus 2.5 percent.

The Redbook report, also released on Tuesday, was right in line with a measure that showed a 2.7 percent year-on-year same-store sales growth in the February 5 week.

Additionally Redbook offers a month-to-month comparison which registered a blistering 1.7 percent gain. Keep in mind that annualized that would point to a 20.4 percent retail gain in one year!

Early next week the government will post the January retail sales report amid most predicting a solid gain.

The economy accelerated at the end of 2010 as consumer spending climbed by the most in more than four years. Gross domestic product grew at a 3.2 percent annual rate, Commerce Department figures showed on Jan. 28.

And remember last week the ISM Manufacturing Index pointed to an overall economy in the month of January growing at a GDP annualized rate of 6.4 percent.

Job Cuts Lowest In January Since Report Began

On Wednesday the Challenger Job-Cut Report registered the fewest layoff announcements for any January since the measurement began in 1993. The Challenger Job-Cut Report is produced by Challenger, Grey & Christmas and tracks layoffs by industry and region.

According to the report, January 2011 cuts are down 46 percent from those announced in January 2010.

It is more common actually to see job cuts increase in January said John Challenger, CEO of Challenger, Gray & Christmas, said in the company's news release. "But what made this January figure so unusual is that it was so low. Even in the 1990s, when annual job cuts were relatively low, January still averaged more than 74,000 job cuts.", Challenger said.

In a separate positive report, payrolls among private employers rose by 187,000 in January, payroll processor ADP said. Analysts polled by Briefing.com were predicting 145,000 jobs added for the month and ahead of the Friday jobs report from the government, economists surveyed by CNNMoney are predicting the economy added 149,000 jobs in January.

The data adds to several of the first credible reports on the health of the job growth in the U.S. Those earlier reports point to significant additions ahead in the labor market for 2011.

U.S. Manufacturing Activity Surges in January to Seven Year High

As noted here many times, the manufacturing sector continues to lead this recovery. And there was more good news at the factories in January.

On Tuesday the Institute for Supply Management released its latest manufacturing report on business and its headline composite index jumped to a rare 60.8 reading. The index is now at its highest level since May 2004 when the reading was 61.4 percent.

Every reading included in the index registered accelerating growth.

New orders spiked up nearly six points to an astonishing level of 67.8! And employment in the sector continues to accelerate -- now posting its 16th straight month of growth.

Manufacturing is clearly the economy's leading driver in this recovery. But the overall economy will likely continue to benefit. In fact, the ISM correlated its Tuesday report (like it does each month) with an annualized GDP estimate:

"The past relationship between the PMI and the overall economy indicates that the PMI for January (60.8 percent) corresponds to a 6.4 percent increase in real gross domestic product (GDP) on an annual basis."

No doubt the jobs picture will continue to improve and the recovery is gaining traction.

Jobs Outlook Continues to Improve

Three reports this past week continue to point to healthy jobs growth in the U.S.

On Tuesday the New York region posted healthy activity with the Empire State general business conditions index rising more than two points to 11.92. New orders showed significant acceleration and new orders accelerated to 25.39.

The report registered accelerating employment numbers during the month.

On Thursday, the Philly Fed reported general manufacturing business conditions of significant month-to-month growth. New orders, the life blood of business, show a doubling in growth. Shipments nearly tripled.

Economic strength was across the board in this report which showed a sharp rise for employment, a build in inventories, and a rise in unfilled orders. Price data confirm the strength showing significant pressure for input prices and emerging power for output prices which jumped to 17.1 following 9.4 in December and minus 3.3 in November. Momentum in the manufacturing sector continues to build.

And finally -- initial jobless claims dropped an unexpectedly sharp 37,000 to 404,000 from a revised 441,000 the prior week. The four-week average likely provides the best insight. The average is down 4,000 to 411,750 and is down more than 14,000 from a month ago.

Bernanke and Fed: Recovery Gaining Traction

The U.S. economy is hitting its stride and gaining traction. That summarized comments by Fed Officials as Chairman Bernanke testified to the Senate Budget Committee on Friday.

"We have seen increased evidence that a self-sustaining recovery in consumer and business spending may be taking hold," said the Chairman.

Other Fed officials quickly echoed his tone.

Fed Board Governor Elizabeth Duke said in a separate speech that the recovery appeared to be revving up. "I am encouraged by signs that the recovery may have gained traction recently," Duke said.

Chicago Fed President Charles Evans -- a big proponent of keeping monetary accommodation in place -- also reported, "More recent data have been coming in somewhat stronger."

Although the recovery still is not as strong as many officials would like, the majority now point evidence of slow to moderate economic improvement in their districts.

In fact just recently several districts have introduced "stress indexes" to quantify the severity of economic shocks along with the associated rebound from such episodes. The measures are based on 11 financial market variables, each
of which captures one or more key features of financial stress.

Current readouts were recently release for the Kansas City and St. Louis Districts. Both show stress indexes that have now returned to historically "normal" levels.

Global Aluminum Demand Rebound is Largest in Nearly 15 Years

Aluminum demand rebounded 14 percent in 2010, the biggest increase since at least 1996, according to data compiled by Bloomberg and reported on Monday. The worlds largest aluminum producer, Alcoa also reported that global consumption will likely continue to increase in 2011 -- probably by at least 12 percent.

Alcoa also reported its highest profit in nine quarters revealing that the price of its product is now approaching pre-recession levels.

Additionally, Chief Financial Officer Chuck McLane said, "Each of our businesses was able to significantly improve their performance." Demand strengthened in most of the Alcoa markets and productivity gained.

And the good news for jobs in the industry? The company said it will restore idled production at three U.S. plants in 2011. More evidence that the 2011 labor market is on the mend.

2011: A Year of Significant Job Growth?

Several of the first credible reports on the health of the job growth in the U.S. point to significant additions ahead in the labor market for 2011.

On Wednesday, the ADP employment report indicated a gigantic 297,000 surge for December private payrolls. This gain is far outside even the most high-end of expectations for most economist's forecasts.

The ADP report came minutes before an additional Challenger Job cut report which showed the best reading in almost 11 years! Fewer layoffs are being announced -- the fewest since June 2000 according to Challenger's count which fell to 32,004 in December vs November's 48,711. The drop confirms last week's report on continued improvement in jobless claims where fewer claimants are filing for unemployment benefits.

The news is no doubt welcome for many and underscores the health of a recovery that is delivering on jobs growth more quickly than any recovery in recent history.

First 2011 Business Headlines Mostly Merry

Facebook, the popular social networking site, has raised $500 million from Goldman Sachs and a Russian investor in a deal that values the company at $50 billion.

China's manufacturing activity eased slightly in December, although it remained in expansion mode, according to a survey of the country's purchasing managers.

In response, Asian stock markets were higher on the first trading day of 2011, with investor confidence boosted by signs that China's efforts at keeping a lid on inflation may be working.

Singapore's economy returned to growth in the fourth-quarter as strength in manufacturing helped offset weakness in the construction sector.

The dollar began the New Year on a stronger note against other major currencies in Asia Monday as investors bought the greenback to position for an expected strong reading in US economic data due later in the day.

Loan refinance rates are declining again with Citibank, Chase and Bank of America all lowering their mortgage rates.

And on Monday, we are likely to see a moderately healthy headline number for the ISM Manufacturing Index for December as the new orders index remains on a recent rebound, posting at 56.6 in November, indicating solid month-to-month growth and a sector that continues to lead a recovery that is now 20 months old.

Putting the Bow on a Positive 2010

U.S. retailers put a bow on a positive 2010 and registered their best performance in five years according to preliminary reports released on Monday.

Holiday sales jumped 5.5 percent as consumers returned to retailers across the board including high-end Macy’s Inc., Tiffany's. and Bloomingdale's.

Consumers were out in full forces at most every chain and also increased their spending on the Web. Their spending, which accounts for about 70 percent of the U.S. economy, is a further positive sign for a sustained recovery heading into 2011.

"Increasing confidence has freed up more money from savings," said Michael McNamara, a vice president at New York-based SpendingPulse. "We are seeing this momentum building and being sustained."

Apparel sales grew the fastest in the 50 days before Christmas, with an 11 percent gain, more than 10 times the pace of last year.

Reports just before Christmas showed that consumer confidence climbed in December to the highest level in six months and that U.S. jobless claims continue to fall with job openings on the rise.

TARP Payback Outlook Brightens Even Further

On Wednesday, taxpayers received additional paybacks from their investments in the Troubled Asset Relief Program (TARP).

General Motors Corp., which went public last month, repurchased it's preferred shares in the program to the tune of $2.1B.

Additionally, common shares held by the Treasury are now valued at nearly $17B based on GM's closing price of $33.61 on Wednesday. The Treasury continues to hold a stake of 500,065,254 shares of common stock in GM via the TARP program investment.

Monday's transaction is further evidence of the success of the $700B program that has now not only helped stabilize the U.S. Banking system, but also the U.S. auto industry.

The government investment -- which initially was viewed as a cost burden to U.S. taxpayers -- has now stabilized two large U.S. industries and has some analysts wondering if the investments might even turn a profit. Cost estimates over the last several months have the break-even gap narrowing nearly every month, with the last estimate closing to within $25 billion.

Holiday Retail Season Running At Strong Pace

Retail revenues probably rose in November for a fifth consecutive month as American shoppers began their holiday purchases. Reports later this week will show consumers are returning to the stores in greater numbers and spending more than in recent holiday shopping seasons.

The consensus among economists surveyed is for a 0.7 percent gain in November. That would follow a 1.2 percent October increase.

"The holiday season is running at a pretty strong pace," said Guy LeBas, of Janney Montgomery Scott LLC in Philadelphia. "There’s a broad-based uptick in sales helped by aggressive discounts."

The National Retail Federation has forecast November- December holiday sales will rise by 2.3 percent from a year ago, the most since 2006. A Bloomberg survey taken Dec. 2 to Dec. 8 showed economists raised projections for consumer purchases, the biggest part of the economy, to 2.6 percent for next year, up from their 2.3 percent estimate the prior month.

Retailers will also benefit from consumer confidence, which rose in December to the highest level in six months -- that according to the Reuters/University of Michigan report released last week.

"As we look at November into December, we see strength across the store," says Chief Financial Officer Carol Tome of Home Depot.

A strong holiday showing by retailers will be additional evidence that the U.S. economic recovery is starting to fire on multiple cylinders.

Average Household Net Worth Increased by over $10,000 in Q3

The average U.S. household net wealth worth rose by over $10,000 in the third quarter according to Federal Reserve data released on Thursday and an estimate on the number of total households in the U.S. Collectively that resulted in a net worth increased of $1.2 trillion dollars for all households.

The increase is largely due to financial investments such as stocks and mutual fund holdings and represents even more evidence that the U.S. economy is beginning to fire on multiple cylinders.

Job Openings On The Rise; Up 44% Since July 2009

Businesses and government advertised nearly 3.4 million jobs at the end of October, up about 12 percent from the previous month, the Labor Department said Tuesday in its Job Openings and Labor Turnover survey.

That reverses two months of declines and is the highest total since August 2008, just before the financial crisis intensified.

Overall, the number of advertised jobs has increased by about 1 million, or 44 percent, since the low point of July 2009, a month after the recession ended.

And the new job postings continue at a rapid rate. According to Job Search on CNN Money.com, 151,950 new jobs were added to the site on Wednesday alone.

And there are more positive signs for jobs... according to the Manpower Employment Outlook Survey for Q1 2011:

When seasonal variations are removed from the data, the Outlook is +9%, the most promising hiring expectations reported since Quarter 4 2008... U.S. employers have now expressed
a positive Outlook for five straight quarters.

Source (Manpower.com)

Income Tax Cuts, Unemployment Benefits, and Social Security Relief

A deal appears near with President Barack Obama and congressional leaders. The pending bill will essentially give U.S. taxpayers a pay raise which will in turn pump money into the recovering economy almost immediately. The deal will also boost the creation of hundreds of thousands of jobs over the next two years.

The big surprise in the legislation: a one-year 2% tax cut in Social Security withholdings. That cut alone will result in significant take-home upside for most wage earners.

Other income-tax cuts, that were set to expire at the end of 2010, will now remain for at least another year. Those cuts will continue to encourage small businesses to continue to hire as they have been in recent months.

The president and congressional leaders also agreed to extend benefits for the long-term unemployed for 13 more months. That aid had expired Nov. 30 and up to 2 million unemployed people would have run out of benefits by the end of the year.

One year examples for the extent of the cut in Social Security taxes
For worker earning $40,000 a year the Social Security tax cut will result in an additional $800 in take home pay next year. A employee earning $100,000 will take home $2,000 more.

And on the jobs front, the Center for American Progress predicts that extending the unemployment benefits through next year will generate an additional 520,000 jobs -- further undergirding an labor market that is steadfastly improving.

Democrats and Republicans Appear Likely to Extend Unemployment Benefits

Politicians went on Sunday talk shows and made it clear that both sides are ready to extend benefits to the unemployed -- no matter their party affiliation.

President Obama is pressuring both parties to extend unemployment insurance and it appears a Congressional deal could be reached this week.

"I think most folks believe the recipe would include at least an extension of unemployment benefits for those who are unemployed and an extension of all of the tax rates for all Americans for some period of time," said Republican Senator Jon Kyl of Arizona.

"Without unemployment benefits being extended, personally, this is a nonstarter," said Democratic Senator Dick Durbin of Illinois.

Durbin and Kyl were speaking on the CBS Sunday show "Face the Nation."

On CNN's "State of the Union" Republican Senator Orrin Hatch, R-Utah, said, "Let's take care of the unemployment compensation... We've got to do it. So let's do it."

The movement toward a possible compromise came after Republicans blocked Democratic efforts in the Senate on Saturday to extend the current tax rates on all but the highest income levels. Republicans prefer extending all the tax rates permanently, a prospect that also can't win legislative approval and that Obama would be sure to veto.

The debate comes amidst an 18-month recovery that is beginning to add jobs more quickly than any other recovery from recession in recent memory. But because of the depth of the recession just past, many in the U.S. continue to rely on government benefits as they seek to find permanent work as the recovery begins to fire on multiple cylinders.

Strong Retail, Healthy Housing Report Net Rising Stock Averages

Two new reports on Thursday added additional good news to that already reported Wednesday.

Strong retail sales and a healthy reading on the housing market further boosted investor confidence in a recovery that is finding its footing and starting to fire on many cylinders.

Monthly sales volumes from individual department, chain, discount, and apparel stores are usually reported on the first Thursday of each month. This month, that report registered a surge in retail sales for November. Gains appear across the spectrum of stores: big to small, high-end to low-end, general merchandise to apparel.

Year over year sales gains for these stores have now shifted from the low to mid single digit percentage gain to the mid to high single digit percentage gain. Today's results combined with yesterday's strong report for vehicle sales points to a U.S. consumer is solidly participating in the recovery.

And on the housing front, the pending home sales index jumped 10.4 percent in October to indicate gains ahead for existing home sales. The index at 89.3 is up 18 percent from its post-stimulus low in June. Low home prices and low rates appear to be stimulating demand. The Pending Home Sales Index is a leading indicator for the housing sector, based on pending sales of existing homes.

In response to these additional pieces of good news, the Dow Jones industrial average rose 106 points. Combined with the 249-point gain Wednesday, the index has now had its best two-day run since July 7-8.

Where the market will go from here and the stock market trend in 2011, is of course anyone's guess.

U.S. Recovery Now Firing on Multiple Cylinders

Many reports out on Wednesday point to a U.S. recovery that is exhibiting healthy signs on many different fronts.

Motor vehicle sales are now enjoying a strong run. U.S.-made vehicle sales held unchanged in November at a 9.1 million unit annual rate. The results surprised many recovery skeptics who were calling for a fizzle in November. Anecdotal reports on used car sales point to strength as do indications on sales at auto-parts retail chains. Motor vehicle sales make up 18 percent of total retail sales.

Private-sector employment increased by +93,000 from October to November on a seasonally adjusted basis, according to the latest ADP National Employment Report released today. The best news in the report shows that small businesses (the heart of job producers) actually accounted for more than half of the net additions. (+54,000) The report bodes well for the government's report released later this week which will also include government job additions. Some analysts now believe net additions in November may have reached close to +200,000 jobs for the month.

Manufacturing continues to grow at a healthy pace, according to the ISM report for November. The growth has now been persistent for 16 straight months with the sector now adding jobs for 12 straight months.

Construction spending surprisingly jumped in October, rising 0.7 percent, following a 0.7 percent rebound the month before. The market expectation was for a 0.4 percent decrease. Strength was in multifamily housing. (Also a surprise to many)

The Beige Book prepared for the December 14 Fed meeting gave the economy a modest upgrade.
Quotes included:

- Manufacturing activity continued to expand in almost all Districts, with relatively strong growth seen in metal fabrication and the automotive industries. Reports also showed steady to increasing activity for professional and nonfinancial services.

- Retail spending showed improvement across most Districts.

- Lending activity is picking up somewhat for businesses in most Districts.

- Hiring activity showed some improvement across most Districts.

- Inflation remains subdued.

The Economic Cycle Research Institute, ECRI, a New York-based independent forecasting group, upgraded their projection for future economic growth. Earlier in the week, ECRI's managing director and cofounder, Lakshman Achuthan, was on CNBC Monday to discuss the enhancement of their Oct 28, 2010 prediction. Last month the Institute declared that "The much-feared double-dip recession is not going to happen". This month they go several steps further to say:

- There will be a revival of US Economic growth in the near future.

- When you are at this stage of the [recovery] cycle, a shock won't derail us and put us into a new recession.

- In October they said "no second recession." Now they are saying economic growth is likely to accelerate to a 3-4% annualized rate.

Achuthan went on to indicate that although we are a long way off from recovering the 8.5M jobs lost in the recession, the economy has now added back 1M and we are on track for to begin to see significant job gains again.

Chicago PMI Up, Consumer Confidence Jumps, Retail Spikes

On Tuesday, Chicago manufacturing reports and Consumer Confidence led the good news of the day.

Chicagoland continues to report accelerating month-to-month growth in their manufacturing sector. New orders rose in November vs October to extend what is now extremely strong order growth trending. Production is now cranking and like other regions is raising the demand for manufacturing employment which was reported strong in November as well as October. The healthy production is also holding down and unfilled orders, which now reflect a contracting rate.

The Chicago report covers both non-manufacturing and manufacturing and indicates that we will continue to see strength in the nationwide purchasing reports for November also to be released this week.

Consumer confidence improved in November at a rate better than any economist had projected this month. The Conference Board's reading jumped more than four points to 54.1 fueled by gains in their "expectations component." That measurement points to overall improvement in future months.

Retail sales also moved higher in the November 27 week according to ICSC-Goldman's index released on Tuesday. The improvement now registers a year-on-year rate of plus 3.5 percent. For November as a whole, ICSC-Goldman has measured a three to four percent year-year gain.

Redbook reported a spike higher in same-store retail sales during the week just past. Its reading at a plus 4.9 percent on-year rate is now the strongest retail growth rate of the whole recovery.

All of these reports underscore a solid recovery that is on track and jobs growth (particularly in manufacturing) that continues to increase.

A Small Price to Pay: $25B And Falling

The Troubled Asset Relief Program will cost taxpayers far less than initially feared, with the new price tag estimate now just in at $25 billion. That according to the Congressional Budget Office report released on Monday.

The nonpartisan group underscored that, "it was not apparent when the TARP was created two years ago that the costs would be this low. Because the financial system stabilized and then improved, the amount of funds used by the TARP was well below the $700 billion initially authorized and the outcomes of most transactions made through the TARP were favorable for the federal government."

The once much debated program, now has fewer and fewer skeptics. And it seems each month brings better news from the CBO. In August, the CBO report predicted a cost of $66B. Just last month the the Treasury Department estimated that TARP cost could end up being as little as $29 billion. Monday's report bested even that. At the $25B estimate, the program will cost less than half of what it took to clean up the massive savings and loan crisis of the 1980s.

The program which provided the equivalent of U.S. taxpayer loans to automakers, big banks, and bad loan brokers has ended up costing far less than expected because of a number of reasons. Most banks that received bailout funds repaid their TARP money sooner than even the most optimistic forecasters had projected 18 months ago. In addition, participation in a program designed to aid struggling homeowners with their mortgages has turned out to be much lower than forecast.

Indeed we now are seeing objective measures that point to 2008 gloom and doom claims that were massively overblown and our report that "TARP is Working" in early 2009, was right on.