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Weekly Economic Commentary 9/10/2012

Weekly Economic Commentary 9/10/2012

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 Member FINRA/SIPCPage 1 of 4
LPL FINANCIAL RESEARCH
Weekly Economic Commentary
September 10, 2012
John Canally, CFA
EconomistLPL Financial
Still Sluggish, but Service Sector Solid
The August 2012 employment report (released on Friday, September 7,2012) was yet another reminder of just how the sluggish labor marketis more than three years into the economic recovery. The private sectoreconomy created just 103,000 net new jobs in August 2012, far fewer thanthe 140,000 expected by the consensus of economists polled by BloombergNews, and far fewer than the 162,000 net new jobs created in July 2012.Figure 1illustrates that job creation over the past 30 months (since theeconomy began consistently creating jobs in early 2010) is sluggish, evenwhen compared to the “jobless recoveries” coming out of the recessions inthe early 90s and early 00s. In this and other publications, we have writtenextensively about why job creation has been so sluggish, but in this week’sreport, we want to focus on where the jobs are being created and, perhapsmore importantly, why.
Please see the LPL Financial Research Weekly Calendar on page 3
Highlights
The dynamic U.S. economy creates anddestroys millions of jobs each month.“Good old American know-how” continues tobe in demand overseas, and professional andbusiness services jobs are benefitting.The slow pace of job growth may prompt theFederal Reserve (Fed) to act this week to addmore monetary stimulus to the economy.
1
Job Gains in This Recovery Look Weak Even Compared With “Jobless” Recoveries inEarly 90s and Early 00s
Source: LPL Financial, Bloomberg data 09/10/12Please note, chart represents both private and public sector jobs.
061218243036
19912003Current
6%5%4%3%2%1%0%Months
We refer to the “net new jobs” in the section above for a reason. Eachmonth, the still quite dynamic U.S. economy, despite the post-GreatRecession sluggishness, creates and destroys millions of jobs. The figure
 
LPL Financial Member FINRA/SIPC Page 2 of 4
WEEKLY ECONOMIC COMMENTARY
3
Export Service Center Jobs Benefitting From“Good Old American Know-How”
Source: Haver Analytics 09/10/12(Shaded Areas Indicate Recession)
1112091008070506040302 Job Openings In the Export-Oriented Service Sector
Thousands
1000900800700600500400
2
Since the End of the Great Recession, DynamicU.S. Economy Creates and Destroys More Than 4Million Jobs Per Month
Source: Bureau of Labor Statistics, Haver Analytics 09/10/12(Shaded Areas Indicate Recession)
111209100807050604 JOLTS: Hires: Total,
Seasonally Adjusted, Thousands
JOLTS: Total Separations: Total,
Seasonally Adjusted,Thousands
560052004800440040003600
noted above is the net result of all the jobs created and destroyed eachmonth. The data on jobs created and destroyed each month is derived fromthe Job Openings and Labor Turnover (JOLTs) report. We discussed themonthly JOLTs reports in depth in the
Weekly Economic Commentaries 
 dated April 2, 2012 and May 14, 2012. The JOLTs data for July 2012 is dueout this week (on Tuesday, September 11, 2012).The most recent JOLTs data (June 2012) revealed that 4.361 millionpeople were hired into new jobs in June 2012, while 4.278 million peopleleft their jobs because they were fired or laid off, quit to find a new job, orretired. The net of those two numbers 4.361 million less 4.278 million,or 83,000 was the number of net new jobs created in June 2012, asreported in the June 2012 employment report released in early July 2012.The JOLTs data also provides data on the number of job openings at the endof each month. There were 700,000 job openings in the “professional andbusiness services” category among the 3.8 million open jobs at the end ofJune 2012. There were more job openings in this category, on average, inthe first six months of 2012 than in any six-month period since the first halfof 2008. Add in the open jobs in educational services and arts, education,and recreation services, and there were more than 800,000 open jobs inthis category of employment that is most sensitive to the United States’service exports economy. Why is this category of jobs so important?In our
Weekly Economic Commentary: Made in the USA
(August 20, 2012),we noted that the United States runs a large and persistent trade surpluson the service side of the ledger, as consumers and businesses around theworld demand America’s intellectual property and expertise and culture.Overall, service sector jobs, which increased by 119,000 in August 2012and have increased by nearly 2 million in the past 12 months, are the bigbeneficiary of the global demand for our TV, movie and sports rights, legaland professional advice, and generally just “good old American know-how.Eighty percent of U.S. jobs are service-related, and although much is madeof the maligned “hamburger flipper” service job, many U.S. service-relatedjobs require advanced degrees and advanced skills, and help to makepossible our booming business in service exports.Although some of the other 90 million service sector jobs outside of thelimited service restaurants do not require advanced skills or an advanceddegree, many do. In areas of the service sector where the United States hasa trade surplus, job growth is relatively robust, and the unemployment rateis relatively low.For example, while the national unemployment rate stood at 8.1% in August2012, the unemployment rate in export-oriented professional and technicalservices stood at 5.9%. It should be noted that in this catch-all category,and in the industries within this category noted below, the unemploymentrate in August 2012 remained well above, and in most cases more thandouble, the pre-Great Recession levels. The point here is not that thingsare back to normal in any of these professions or industries, but that theyare recovering faster than in job categories that do not benefit from thebooming demand for “good old American know-how.
For the Record
About 3.5 million people are employedin “limited service restaurants,” a goodproxy for fast food restaurants. These 3.5million or so jobs (not all of which are theapocryphal “hamburger flippers”) accountfor
less than 4%
of the 93 million privateservice sector jobs in the U.S. economy today.
 
LPL Financial Member FINRA/SIPC Page 3 of 4
WEEKLY ECONOMIC COMMENTARY
201210 Sep
 
Consumer Credit (Jul)
 
China: CPI (Aug)
 
China: Industrial Production (Aug)
 
China: Retail Sales (Aug)
 
China: Imports and Exports (Aug)
 
France: Industrial Production (Jul)
11 Sep
 
NFIB Small Business Sentiment Index (Aug)
 
JOLTS (Jul)
 
Trade Balance (Jul)
 
China: Money Supply (Aug)
 
China: New Loan Growth (Aug)
 
Netherlands: Bond Auction
12 Sep
 
Wholesale Inventories (Jul)
 
Germany: Supreme Court Decision onEuropean Stability Mechanism (ESM)
 
Netherlands: General Election
 
Eurozone: Plans for EuropeanBanking Union unveiled
 
Germany: Bond Auction
13 Sep
 
Initial Claims (9/8)
 
PPI (Aug)
 
Budget Statement (Aug)
 
Federal Open Market Committee (FOMC)Decision
 
Bernanke Press Conference
 
Fed releases new economic forecasts
 
Switzerland: Central Bank Meeting
 
South Korea: Central Bank Meeting
 
Italy: Bond auction
14 Sep
 
CPI (Aug)
 
Retail Sales (Aug)
 
Industrial Production (Aug)
 
Capacity Utilization (Aug)
 
Consumer Sentiment (1H Sept)
 
Business Inventories (Jul)
 
European Union (EU) Finance Ministers andCentral Bankers Meeting
 
Greece: Budget announcement
 
Eurozone: CPI (Aug)
 
Belgium: Bond Auction
FedGlobal Notables
LPL Financial Research Weekly Calendar
U.S. Data
In the finance and insurance business (the United States has a large tradesurplus in this area), the unemployment rate was just 5.0% in August2012, and the unemployment rate in legal occupations was just 3.2%. TheUnited States is also a large net exporter of legal expertise. And despitea still-depressed U.S. construction market, the unemployment rate forarchitectural and engineering professions was just 4.6% in August 2012.Here again, there is tremendous overseas demand for U.S. expertisein architecture and engineering. Although not all of our export-orientedservice jobs require an advanced degree, many do. Unfortunately, dataon unemployment rates by educational attainment and occupation arenot readily available. However, the unemployment rate for those with abachelor’s degree or higher stands at 4.1% (versus the national average of8.1%). In stark contrast, the unemployment rate for those without a highschool diploma is 12.0%.On balance, the labor market continues to heal, but very slowly, evenrelative to the “jobless recoveries” in the early 1990s and early 2000s, andthat slow pace of growth is likely to prompt the Federal Reserve (Fed) toact as soon as this week to add more monetary stimulus to the economy.Despite the sluggish labor market, however, pockets of strength can stillbe found in the export-oriented service sector, where jobs generally requiremore skills and more education than average.Please see this week’s
Weekly Market Commentary 
for more informationon the what the Fed might do.
4
With a 28,000 Gain in August 2012, and Nearly 600,000Jobs Added Over the Past 12 Months, Professional andBusiness Services Jobs Are at an All-Time High, Drivenby Booming Exports of These Services
Source: Bureau of Labor Statistics, Haver Analytics 09/10/12(Shaded Areas Indicate Recession)
1112091008070506040302 All Employees: Professional & Business Services
Seasonally Adjusted, Millions
18.518.017.517.016.516.015.5

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