The Minnesota monthly jobs report comes out Thursday morning and if we judge by recent headlines it should be a positive one. Don't put any money on that, though.
Two national stories in the past two weeks have cheered up the economic outlook. Retail sales grew 1.1 percent in September and national unemployment fell below 8 percent for the first time since 2009.
But Minnesota is coming off net job losses in August. Employers cut 2,000 positions, and the state's robust estimate for job creation in July was revised downward -- from 6,800 to 4,800 net jobs.
As the September numbers for the state come out this week, what should we expect? Here are four things worth remembering:
1. Strong retail sales appear to signal the jobs numbers should improve. Because more than two thirds of the American economy is driven by consumer spending, the 1.1 percent increase in retail sales prompted a 128-point rally in the stock market on Tuesday. Minneapolis-based Target's retail sales were up 2.1 percent in September and a survey of large retailers showed 3.9 percent growth in the lull between back-to-school spending and the Christmas season.
There are two caveats: First, retail sales were partly driven upward by sales of the iPhone 5, which was released on Sept. 21. Apple always tends to boost monthly retail sales when it releases new models. Second, Jeffrey Bartash, writing for Marketwatch, argues that the rise in retail sales in part reflects the rising costs of gasoline and groceries:
So bravo for Apple and iPhone lovers. Yet the bulk of the increase in retail spending in September occurred in other segments, mainly auto dealers, gas stations and grocery stores. These categories accounted for more than 58% of the increase in spending last month, compared to a combined 22% gain for nonstore and electronics retailers. Spending on gas and food, moreover, reflected the high price of fuel in September as well as the rising cost of groceries. These are not positive developments for consumers or the economy overall. When Americans have to spend more on basic necessities, they have less cash for other goods and services.
2. The recent trend for manufacturing does not bode well. U.S. manufacturers shed 16,000 jobs in September, and in Minnesota, manufacturers cut 2,700 jobs in August. The Mid-America Business Conditions index predicted flat to negative growth in the Midwest for the fourth quarter, and Minnesota was one of the weakest states in the index in September, according to Creighton professor Ernie Goss:
For a third straight month, the Minnesota Business Conditions Index slumped below growth neutral. The index, based on a survey of supply managers in the state, decreased to 47.2 from 49.7 in August. This is the first time since the recession that the overall index has been below 50.0 for three straight months.
3. There are some reasons to take the drop in unemployment to 7.8 percent with a grain of salt. Not that anyone manipulated the numbers, as a loud minority has claimed, but just that the Bureau of Labor Statistics has some built-in volatility in the household survey on which the unemployment rate is based. Try to ignore the headline on this piece, and you'll find some reasonable skepticism about the drop in joblessness from Forbes contributor Robert Barone:
...the economy would need to be growing at breakneck speed for unemployment to drop from 8.3% to 7.8% over two months. While this is quite different from the “manipulation” charge, it does make sense. The fact is, almost all other underlying data point to weaker, not stronger jobs numbers. New part-time jobs dominated the Household Survey data in September. Goods producing jobs actually fell.
4. The state monthly reports are even more volatile than the national reports, and probably don't paint a bright enough picture of the state job market. The more solid employment number in the state comes from a quarterly census of employers. That number indicates the state may have created 18,000 more jobs in the early part of the year than the monthly figures have shown, but because it is a more rigorous analysis, the census figures only come out four times a year and lag by about five months. Wisconsin Gov. Scott Walker got into trouble in his state for arguing this same point and releasing the census figures early, just before his recall election. The second quarter census figures for Minnesota should come out in late November. But the larger point is that the monthly figures are based on a more limited survey, extrapolated based on the census, and then benchmarked back to it. If the census for the first quarter shows a better jobs picture than the monthly reports from the first quarter, the picture is probably better.