Is The Worst Over?

If data and numbers can be trusted, then it is possible that the US recession may have seen its bottom in November-December of last year. A new report released by the Institute of Supply Management suggests that US non-manufacturing sector contracted at a slower pace in January. The Institute’s index for non-manufacturing activity was at 42.9 in January, up from 40.1 in December. Its non manufacturing business index was up from 38.9 in December to 44.2 in January. The improvement in these indexes suggests that the pace of contraction has reduced. The index for new orders was also up from 38.9 to 41.6. Though the improvement may be marginal, it suggests that things may be turning around. Another key index that was encouraging was the inventory change sub index, which shrunk to 41.5 from 49.0 suggesting that pick up in business activity was leading to reduction in inventories. Other consumer confidence indexes were also marginally better and if lady luck is with the US, the recession may have hit the inflexion point.

However, as long as the key indexes are at a sub 50 level, the economy is in the contraction mode. However, the economy will back in the expansionary mode only when, these indexes cross the 50 mark.  While, some of the indexes may be suggestive of the US recession having bottomed out, unemployment continues to increase. The employment index fell to 34.4 from 34.5 reflecting a deteriorating condition on the jobs front. It is likely that unemployment may continue to rise for some time as usually employment lags the economic cycle. Accordingly, jobs lost for January are expected to be over 520,000 and the trend is likely to extend into February. The inflexion point for unemployment could be just a few months away, if the economy continues on its turnaround course. Latest figures as per the ADP National Employment Report confirm that the job loss in January was 522,000 for the US non-farm sector. The breakup of jobs lost by sector, as per the report, is as follow:

Sector of Economy

Jobs lost in January 2009

Small businesses

175,000

Medium businesses

255,000

Large businesses

92,000

Total number of jobs lost

522,000

 

Thus, while some of the dark clouds hounding the US economy seem to be fading, others continue to cast their dark shadow. However, as per the adage that every cloud has a silver lining, the dark cloud of recession seems to have had a positive impact on productivity. US companies, in their attempt to contain losses seem to have managed to squeeze more output out of the employees they did not retrench. Employee productivity was up by 1.5% in the last quarter of 2008 on the back of a 1.3% gain in the previous three months. This is a welcome development and will add to the long term competitiveness of the US economy and give reason to the US dollar to maintain its strength. 

3 comments

  1. mykungfuisgood

    Hey piponomics, I’ve never heard of employee productivity. How is it measured and/or what does it measure.

    Thanks

    Reply
  2. mykungfuisgood

    Hey piponomics, I’ve never heard of employee productivity. How is it measured and/or what does it measure.

    Thanks

    Reply
  3. Forex Gumpforexgump

    Employee productivity refers to labor productivity and may broadly be defined as “the ratio of a volume measure of output to a volume measure of input”. Thus, for a given number of hours of input for a particular employee, if his output has improved, one can say that the employee’s productivity has gone up. Imagine this to be an economy wide phenomenon and what it could do to the cost of production. viewing the argument conversely, enhanced productivity leads to a reduction in costs for producing the same output. If we compare this across nations, higher productivity nations will have a competitive advantage over the others, which will eventually reflect in a stronger currency for the nation with better productivity.

    There are several complex techniques to measure productivity and some answers can be found on the OECD website.

    Reply

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>