Judging by the figures for growth, the U.S. economy is in the doldrums. Labor-market data tell a more positive story.
Payrolls climbed by 202,000 a month on average from January through June, up from 180,000 in the second half of 2012, according to the Labor Department. Such gains are typically linked with gross domestic product growing close to 3 percent, about double what government data may show next week.
“The employment numbers are closer to the true picture,” said Harm Bandholz, chief U.S. economist at UniCredit in New York. “I’m confident GDP growth will pick up in the second half and even more in 2014.”
The weight of the evidence also tips the balance toward a more favorable outcome as federal tax receipts rise at the fastest pace in six years, measures of consumer confidence reach the highest levels since at least 2008, and sales of cars and homes and housing rebound. That helps explain why companies from General Electric Co. to Texas Industries Inc. plan to keep investing and hiring.
After adjusting for the increase in rates that took effect this year, employee income-tax withholdings were up about 6 percent in June compared with a year earlier, the best showing for that month since 2007, according to calculations based on Treasury data by Joseph LaVorgna, chief U.S. economist at Deutsche Bank. More receipts point to gains in employment, rising wages or a combination of both.
“Tax receipts are confirming the improvement in the labor market, but GDP seems to be overstating the weakness in output,” said LaVorgna. GDP in the first half of the year gives the impression of a “lousy” economy whereas it’s actually been “decent,” he said. It “reinforces the view that the second half will be better.”
Growth in the first half of 2013 was restrained by the effect of federal government cutbacks and higher taxes. Slower inventory building and a wider trade deficit also curbed the expansion last quarter, when GDP rose at a 1 percent annualized rate, according to the median forecast in a Bloomberg survey ahead of Commerce Department data due next Wednesday. The economy grew at a 1.8 percent pace in the first quarter.
Expanding job openings, home prices that are growing at the fastest pace since before the recession and record-high equity values are helping shore up household confidence.
GDP is the sum of all goods and services produced as tracked by consumer spending, government outlays and business investment on such things as plants, equipment and inventories.