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ADP Employment Report: Solid Job Growth Gathers Steam

Private-sector employment increased by 217,000 from January to February on a seasonally adjusted basis, according to the latest ADP National Employment Report released today. The estimated change of employment from December 2010 to January 2011 was revised up to 189,000 from the previously reported increase of 187,000. This month’s ADP National Employment Report suggests continued solid growth of nonfarm private employment early in 2011. The recent pattern of rising employment gains since the middle of last year was reinforced by today’s report, as the average gain from December through February (217,000) is well above the average gain over the prior six months (63,000).

The fears of a jobless recovery may be receding but the US economy has a long way to go before pre-recession employment levels are achieved. As we stated previously the economy needs to create over 200,000 jobs per month for 48 consecutive months to achieve pre-recession employment levels. The six month average of 63,000 is still well below the required rate of job creation for a robust recovery to occur.  The Unemployment Rate still exceeds 9%.

The February report is encouraging because it points to an accelerating pace of job creation. The post Christmas season employment surge represents a 30,000 job gain over January’s strong report that triples the six month moving average. The service sector accounted for over 200,000 of the job gains. The manufacturing and goods producing sector combined to create 35,000 jobs. Construction continues to mirror the moribund housing market shedding an additional 9,000 jobs during the month. The construction industry has lost over 2.1 million jobs since its peak in 2008.

The robust recovery in the service sector is welcomed but sustainable economic growth can only be achieved by a robust turn around in the goods producing and manufacturing sectors. Service sector jobs offer lower wages, tend to be highly correlated to retail consumer spending and positions are often transient in nature. Small and Mid-Sized Enterprises (SME) is where the highest concentration of service jobs are created and the employment figures bear that out with SMEs accounting for over 204,000 jobs created during the month of February.

Large businesses added 13,000 jobs during the month of February. The balance sheets of large corporations are strong. The great recession provided large corporates an opportunity to rationalize their business franchise with layoffs, consolidations and prudent cost management. Benign inflation, global presence, outsourcing, low cost of capital and strong equity markets created ideal conditions for profitability and an improved capital structure. The balance sheets of large corporations are flush with $1 trillion in cash and it appears that the large corporates are deploying this capital resource into non-job creating initiatives.

The restructuring of the economy continues. The Federal stimulus program directed massive funds to support fiscally troubled state and local government budgets. The Federal Stimulus Program was a critical factor that help to stabilize local government workforce levels. The expiration of the Federal stimulus program is forcing state and local governments into draconian measures to balance budgets. Government employment levels are being dramatically pared back to maintain fiscal stability. Public service workers unions are under severe pressure to defend employment, compensation and benefits of workers in an increasingly conservative political climate that insists on fiscal conservatism and is highly adverse to any tax increase.

The elimination of government jobs, the expiration of unemployment funds coupled with rising interest rates, energy and commodity prices will drain significant buying power from the economy and create additional headwinds for the recovery.

Macroeconomic Factors

The principal macroeconomic factors confronting the economy are the continued high unemployment rate, weakness in the housing market, tax policy and deepening fiscal crisis of state, local and federal governments. The Tea Party tax rebellion has returned congress to Republican control and will encourage the federal government to pursue fiscally conservative policies that will dramatically cut federal spending and taxes for the small businesses and the middle class. In the short term, spending cuts in federal programs will result in layoffs, and cuts in entitlement programs will remove purchasing power from the demand side of the market. It is believed that the tax cuts to businesses will provide the necessary incentive for SME’s to invest capital surpluses back into the company to stimulate job creation.

The growing uncertainty in the Middle East and North Africa is a significant political risk factor. The expansion of political instability in the Gulf Region particularly Iran, Egypt and Saudi Arabia; a protracted civil war in Libya or a reignited regional conflict involving Israel would have a dramatic impact on oil markets; sparking a rise in commodity prices and interest rates placing additional stress on economic recovery.

Political uncertainty tends to heighten risk aversion in credit markets. The financial rescue of banks with generous capital infusions and accommodating monetary policies from sovereign governments has buttressed the profitability and capital position of banks. Regulatory uncertainty of Basel III, Dodd-Frank, and the continued rationalization of the commercial banking system and continued concern about the quality of credit portfolios continue to curtail availability of credit for SME lending. Governments are encouraging banks to lend more aggressively but banks continue to exercise extreme caution in making loans to financially stressed and capital starved SMEs.

Highlights of the ADP Report for February include:

Private sector employment increased by 217,000

Employment in the service-providing sector rose 202,000

Employment in the goods-producing sector declined 15,000

Employment in the manufacturing sector declined 20,000

Construction employment declined 9,000

Large businesses with 500 or more workers declined 2,000

Medium-size businesses, defined as those with between 50 and 499 workers increased 24,000

Employment among small-size businesses with fewer than 50 workers, increased 21,000

Overview of Numbers

The 202,000 jobs created by the SME sectors represents over 90% of new job creation. Large businesses comprise approximately 20% of the private sector employment and continues to underperform SMEs in post recession job creation. The strong growth of service sector though welcomed continues to mask the under performance of the manufacturing sector. The 11 million manufacturing jobs comprise approximately 10% of the private sector US workforce. The 20 thousand jobs created during February accounted for 10% of new jobs. Considering the severely distressed condition and capacity utilization of the sector and the favorable conditions for export markets and cost of capital the job growth of the sector appears extremely weak. The US economy is still in search of a driver. The automotive manufacturers have returned to profitability due to global sales in Latin America and China with a large portion of the manufacturing done in local oversea markets.

The stock market continues to perform well. The Fed is optimistic that the QE2 initiative will allay bankers credit risk concerns and ease lending restrictions to SMEs. A projected GDP growth rate of 3% appears to be an achievable goal. The danger of a double dip recession is receding but severe geopolitical risk factors continue to keep the possibility alive.

Interest rates have been at historic lows for two years and will begin to notch upward as central bankers continue to manage growth with a mix of inflation and higher costs of capital. The stability of the euro and the EU’s sovereign debt crisis will remain a concern and put upward pressure on interest rates and the dollar.

As the price of commodities and food spikes higher the potential of civil unrest and political instability in emerging markets of Southeast Asia, Africa and Latin America grows. Some even suggest this instability may touch China.

The balance sheets of large corporate entities remain flush with cash. The availability of distressed assets and volatile markets will encourage corporate treasurers to put that capital to work to capitalize on emerging opportunities. The day of the lazy corporate balance sheet is over.

Solutions from Sum2

Credit Redi offers SMEs tools to manage financial health and improve corporate credit rating to attract and minimize the cost of capital. Credit Redi helps SMEs improve credit standing and demonstrate to bankers that you are a good credit risk.

For information on the construction and use of the ADP Report, please visit the methodology section of the ADP National Employment Report website.

You Tube Video: John Handy, Hard Work

Risk: unemployment, recession, recovery, SME, political

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March 3, 2011 Posted by | ADP, banking, Basel II, commercial, commodities, credit, Credit Redi, economics, government, labor relations, manufacturing, political risk, politics, recession, regulatory, risk management, small business, SME, social unrest, Sum2, Treasury, unemployment, unions, US dollar | , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , | Leave a comment

ADP Reports Weak Job Growth

ADP has released its National Employment Report for April.   Non-farm private employment increased 32,000 during  the month on a seasonally adjusted basis.   ADP also reported an upward revision of 19,000 jobs for March.  The two consecutive net employment gains reported by ADP indicates that job loss may have bottomed and the slim increase in employment confirms a positive trend is underway.     The massive governmental intervention to recapitalize the banking sector and initiate stimulus programs have stabilized the economy.  The abatement of extreme risk aversion in the credit markets, favorable interest rates, improving consumer sentiment, low inflation and the dramatic rebound in securities markets are all positive growth drivers for the economy.

Highlights of the ADP  report include:

Estimates non-farm private employment in the service-providing sector increased by 50,000.

Employment in the goods-producing sector declined 18,000.

Employment in the manufacturing sector rose for the third consecutive month by 29,000 jobs.

Employment in the construction sector dropped by 49,000.

Large businesses with 500 or more workers  added 14,000 jobs

Medium-size businesses, defined as those with between 50 and 499 workers increased by 17,000.

Employment among small-size businesses with fewer than 50 workers, increased by 1,000 in April.

Employment in the financial services sector dropped 14,000, resulting in over three years of consecutive monthly
declines.

Overview of Numbers

The net gain of 32,000 jobs for the massive US economy is an admittedly weak gain for an economy that has shed 11 million jobs but it is an indication that the economy is stabilizing.

The correlation of the loss of jobs in construction and financial services is an indication of a US economy that continues to transition its dependency on residential and commercial real estate development.  The difficult conditions in the commercial and residential real estate market will continue as excess inventories brought on by high foreclosure rates continue to be worked off.   As the ADP report highlights construction employment has declined for thirty-nine consecutive months, bringing the total decline in construction jobs since the peak in January 2007 to 2,159,000.  Its clear that the US economy has lost two critical recovery drivers.

Soft conditions in the construction sector weighs heavily on small business job creation.  Most contractors are small businesses and with the anemic rate of new housing construction small business job creation will continue to be soft.

Specialty retail is another large component of the small business market.  Improving consumer sentiment will help this sector.  However small retailers have suffered massive business closures during the recession.  A robust recovery in this sector will not commence until commercial lending for start ups and business expansion becomes more readily available from the banks.

The report also indicates that the goods producing sector of small businesses shed 24,000 jobs during the month  to continue the trend in the deterioration of small manufactures.  This decline was offset by a 25,000 gain in service based jobs.  The  growth of the service sector of the US economy continues at the expense of the manufacturing sector.  The growth of small business service sector indicates that businesses continue to managed fixed costs of their business by outsourcing various services.

This ADP report is a positive indication that we may be at a bottom of the economic cycle.  Bottoms don’t mean that things are improving they indicate that conditions are not worsening.  The economic recovery is still confronted with headwinds.  The oil spill in the Gulf of Mexico, the economic and growing political instability of EU countries and the cooling off of the Chinese economy may present some challenges to a sustained and robust recovery in the United States.

Solutions from Sum2

Sum2 advocates the establishment of an SME Bank to sustain long term economic growth.  Sum2 offers SME’s the Profit|Optimizer to help them manage risk, devise recovery strategies and make better informed capital allocation decisions.

For information on the construction and use of the ADP Report, please visit the methodology section of the ADP National Employment Report website.

You Tube Video: Isley Brothers, Work To Do

Risk: unemployment, recession, recovery, SME

May 5, 2010 Posted by | ADP, banking, credit, manufacturing, real estate, recession, small business, SME, Uncategorized, unemployment | , , , , , , , , , , , , , , , | Leave a comment

Drill Baby Drill: The Bill Comes Due

Louisiana has declared an emergency shrimping season for the off shore beds at the mouth of the Mississippi River.  The emergency harvest of shrimp, oysters and stone crabs is a desperate attempt to grab a final yield from a once bountiful aquaculture that sustained  a way of life and  helped define the regional identity  for multiple generations of Cajun people.  The spreading oil slick gushing from a toppled offshore oil platform threatens to bury that life as it covers the delicate ecology with a toxic cloak that may cast a death blow to a regions way of life.

It is estimated that 210,000 gallons of crude oil are gushing into the Gulf of Mexico every day following the explosion and collapse of British Petroleum’s Deepwater Horizon offshore drilling platform that killed 11 workers. The Transocean rig was reportedly not equipped with a special safety devise that should have capped the well with the collapse of the oil platform. This assertion is being denied by Transocean stating that the well was equipped with the devise but unfortunately it failed to work. The use of the safety devise is a regulatory requirement for any offshore drill platforms in Europe but in the United States this safety devise is not required and is considered an optional operational risk devise. Like the  recent coal miner disaster at Massey Mines, and word today that two more miners have died in Kentucky,  occupational wages sometimes result in death.  We need to understand that preservation of life and environmental safety are critical components of a cost of doing business that must be factored into ROI calculations and risk assessment scenarios.

The Coast Guard is in charge of emergency response to this growing disaster. The Coast Guard is skimming surface oil and using containment booms to control the growing oil slick. The Coast Guard is also considering igniting controlled burns of the surface oil which would release toxicity into the air. Another strategy being considered is the injection of chemicals into the spill to coagulate the oil. This strategy has never been attempted at such an extreme 5,000 foot depth and would also release additional toxins into the water. Technological solutions like the drilling of a relief well or the construction of a containment vessel would take months to accomplish. Man made solutions to cap the environmental disasters of their making always seem to pale in comparison to the scale and fury unleashed by the unrestrained power of nature.

This event marks yet another example of making an honest assessment of the true costs of our behavior and choices. Like the global economic meltdown that was the result of the unfettered credit orgy the bill for risky behavior always comes due. The continued focus on the exploitation and extraction of fossil fuels at the expense of alternative sources of energy comes at a great cost. This disaster may indeed be the death blow to an aqua industry that nurtured a region for many generations and informed a cuisine and culture highly treasured by the world. And like any excursion to a fine NOLA restaurant, someones got to pick up the tab.

The bill always comes due. We want to gorge ourselves at the well of cheap energy only to discover how dear the price of this devil’s bargain really is. Environmental degradation is the most obvious tip of a precarious iceberg that threatens to tip as it melts into an ocean of unsustainability. A destroyed eco-culture of marshlands and animals, abandoned hamlets and townships no longer able to extract a living from the land are the immediate visible signs of the cost of this deal with the devil gone bad.  We must begin to realize that the cost of cheap energy also requires our nation to continually engage in wars and military actions to protect this vital resource.  Cheap oil has badly skewed our economic infrastructure.  It has encouraged our businesses to produce inefficient cars that led to the decline of a strategic industry and destruction of cities like Detroit and Gary Indiana.  It caused the terrible moniker of rust belt cities to be pinned on a region of our country that was once the source of our nations wealth.  Cheap energy help turn our prized manufacturing centers into economic anachronisms.  Cheap oil has forestalled commitment to developing innovative green technologies that continues us to cede our position as a global manufacturing power. As we watch China and Brazil march forward with massive commitments to the development of energy innovation industries that will serve future needs of an energy dependent global economy, America is engaged in a bloody rear guard action to defend the ways of an old dying world too protect  depleting trickles of oil.

Tonight as Americans go to sleep in their energy inefficient homes it is hoped that they may pause to consider that drill baby drill is a rallying cry for an unsustainable dying future. Think of the villages along the Louisiana bayous and how their way of life is coming to an end.   Its time to consider the real costs of a Drill Baby Drill economy and begin to chart a course to a sustainable future.

You tube Music Video: Cajun Music: DL Menard and Louisiana Aces, Out My Backdoor

Risk: economic, environmental, culture

April 30, 2010 Posted by | culture, economics | , , , , , , , , , , , , , , , , , , , , , , , | 1 Comment

Prognostications and Expostulations for 2010

We’re going out on a limb with this one or given thats its winter we’ll say we’re walking on thin ice.   We’ll gaze into the crystal ball and pontificate on eleven  subject areas for 2010.  With some we hope we will be wrong.  With some we hope we will be right.

1.  Stock Market:  Buoyed by well managed earnings by the large multinational companies in the DOW, principally as a result of cost reduction initiatives and exposure to global markets the Index will finish up 6% and close at 11, 011 on the last trading day of 2010.   Given an inflation rate of 4% investors will realize a 2% gain on equity investments in DOW constituents.  S&P 500 and NASDAQ will be flat gaining 2% for the year.

2.  Iraq War:  The war in Iraq will continue to wind down.  America will scale down its military presence in the country.  Troop levels in the country will approximate 85,000 by the close of 2010.  Though direct American military involvement in conflicts will decline,  Iraq will experience civil unrest as Kurd nationalists, Shiite and Sunni Muslims seek to protect their political and economic interests.

3.  Afghanistan War:  The escalation of America’s military presence in Afghanistan will move the theater of war further into Pakistan.  The Taliban will be satisfied to harass US forces by engaging in a guerrilla war.   Taliban and Al-Qaeda supporters will use the opportunity to increase the level of urban terrorist attacks in the large cities of Pakistan.  Al-Qaeda confederates will seek to reestablish base of support in Somalia, Yemen and ties will begin to emerge in Latin American narco-terror states.

4. Iran: The political situation in Iran will continue to deteriorate.  This is a positive development for regional stability because it will force the ruling regime to cede its nuclear program development initiatives.  Iran will not be able to capitalize on the US draw down in Iraq.  It will become increasingly isolated as Hezbollah and Hamas pursue actions that are less confrontational to Israel in Palestine and Lebanon.   The ruling Caliphate position will weaken due to internal political dissent and external economic pressures.

5.  China:  It will be a year of ultra-nationalism in China.  Its stimulus program that is targeted to internal development will sustain a GDP growth rate of 8%.  China will use this opportunity to strengthen the ideological support of its citizens to fall in line with the national development initiative.  Globally China will continue to expand its interests in Africa and will cull deeper relationships with its Pacific Rim club member Latin America.  China will continue to use US preoccupation with its wars in Afghanistan, Iraq and skirmishes in Yemen and Somalia as an opportunity to expand its global presence with a message of peace and cooperation.

5.  US Mid Term Elections:  Republicans will gain a number of seats in Congress.  The continued soft economic conditions, state and local government fiscal crisis, war weariness and cut back in services and rising expenses will make this a bad year for incumbents and the party in power, namely the democrats.  Sarah Palin will play a large role in supporting anti-government candidates drooling over the prospect of  winning a seat in government.

6.  Recession:  Though the recession may be officially over, high unemployment, home foreclosures and spiking interest rates will hamper a robust recovery.  The end of large government stimulus programs  and the continued decrease in real estate values also present strong headwinds to recovery.  We predict a GDP growth rate of 2% for the US economy.  Outsourcing will abate and a move to reintroduce SME manufacturing  will commence.

7.  Technology:  The new green technology will focus on the development of nuclear power plants.  The clash of the titan’s between Google’s Droid and Apple’s I Phone will dominate tech news during the year.  Lesser skirmishes  between Smart Phones makers or the war of the clones will continue to explode altering the home PC market and continue to change the market paradigm for old line firms like DELL, Microsoft and HP.   SaaS or cloud computing will gain on the back of lean business process initiatives and smart phone application development and processing infrastructure will encourage cottage industries fueling the cloud and making for some new millionaires.  The tension between the creators of content and search and delivery will begin to tilt back toward the content providers.  Litigation involving social networking sites will be filed to create safeguards against  its use  as a tool to control and manipulate behaviors thus threatening civil liberties and privacy rights.

8.  Culture:  The Googlization of civilization will allow individuals to embrace paternal corporatism as a pillar to add efficiency and order to their lives.  Multiculturalism will continue to grow in the US.  However a growing political backlash against it will become more of a prominent theme as Teabaggers agitate for a return to the true values of America.  Electronic arts will make major leaps and bounds as commodification continues to be a driving force in the world of art.  Printed words like books and newspapers will continue to dramatically decline.  Writing, drawing and playing musical instruments skills will  ebb as people prefer to develop digital skill sets.  Texting and Tweeting make for poor practice for extended compositions.

9.  Latin America:  Instability will grow in Latin America as narcodollars continue to undermine political stability in Columbia, Venezuela, Mexico and Panama.   The US will increasingly become involved in the conflicts between petro and narcodollars.  Mexico’s stability will be increasingly undermined by the power and corruptible influence of the drug trade.  China’s influence on the continent will grow.

10. European Union:  The EU will continue to manage itself for stability.  It will yearn to return to its aristocratic roots and will become increasingly conservative.  It will continue to have a complex relationship with the expanding Muslim community.  A call to deeper nationalism will arise out of a growing influence of Islam and the inefficiencies of EC bureaucrats in Belgium.  The EU will continue its union of expediency to counterbalance their distrust of Russia and their distaste for America.

11.  Environmental Justice:  Though awareness continues to grow concerning the need to mount and implement large scale solutions to halt the problem of global climate change;  the political will and resources required to drastically alter the planets current trajectory in growth of carbon emissions from the burning of fossil fuels remains unaltered.  Social responsible enterprises, small businesses and individuals continue to make a difference.  Eco friendly small businesses, urban farming, capital formation initiatives around renewable  energy  businesses are hopeful signs of a market response to the pressing problem.  China is investing heavily in becoming a market leader out of business savvy and environmental necessity.  Until the great powers of the world can come to some  collective agreement on how to limit , cap or trade carbon credits we’ll have to be content to separate the trash and recycle, reuse and reduce.

You Tube Music Video: Donald Byrd, Stepping Into Tomorrow

Risk: unfulfilled predictions will make me look bad

January 5, 2010 Posted by | commerce, environment, manufacturing, sustainability | , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , | 3 Comments

G-20 Mulls Sustainable Recovery

800px-G20_2008_summit_participants.svgLast year when the G-20 convened in November it was billed as the Bretton Woods II.  The global economy was in the throes of a banking crisis that rivaled the Great Depression of the 1930’s.  Central bankers and political leaders were struggling to formulate the right mix of policies to strike the proper balance of interventionist programs needed to arrest the accelerating economic decline brought on by the frozen credit markets.  Most believe it worked.

Today in Pittsburgh, conferees  will begin to assess weather the accommodative monetary policies, massive capital infusion programs and historic low interest rates can continue to stabilize the global banking system and bear fruit of real economic growth.   Though economic growth appears to have emerged in the US and the EU, there is  a concern that recovery has become too dependent on the massive government stimulus programs.  The development of a stimulus exit strategy will certainly be on the G-20 agenda.  How to sustain economic recovery without the massive government spending programs is the primary challenge that G-20 leaders need to address.

Global trade agreements and a consistent tax policy across G-20 domiciles will also be areas of focus for conferees.  Regulatory tax arbitrage is an issue that G-20 countries are keen to address.  The days of utilizing domiciles with favorable tax laws to protect assets and revenue derived from a domicile with a less accommodating tax structure is an area that all tax hungry G-20 countries want resolved.  Recognizing taxable revenue streams and repatriating capital gains taxes are particularly pressing concerns considering the massive budget deficits many countries are confronted with.

Global trade issues and the East/West balance of trade continues as concern for conference participants.  The fall of the dollar and China’s growing reticence to continue their purchase of US government debt is an interesting backdrop to the brewing trade spat over US tariffs imposed on the importation of tires manufactured in China.  China has retaliated with an examination of US trade practices and American’s need to keep their fingers crossed that China continues to regularly appear at the government bond auctions with its sizable check book.

You tube Music Video: Edvard Grieg, Anitra’s Dance

Risk: trade, recession, political, economic

September 24, 2009 Posted by | banking, economics, government, recession, regulatory, sustainability, Treasury, Uncategorized, US dollar | , , , , , , , , , , , , , , , | 1 Comment