CBS This Morning: Coastal Job Growth

A new report shows just five coastal cities are getting a huge majority of America's high-tech jobs. Researchers found the Seattle, San Francisco, San Jose, San Diego, and Boston areas accounted for more than 90% of job growth in the tech sector from 2005 to 2017. I joined CBS This Morning to discuss what this says about the economy and the future of jobs.

Job Creation Surges; Rate Hike Back on Table

It’s never as good or as bad as you think. For the past few months, there has been a chorus of downbeat chants that the U.S. economy is headed for a downturn and that the job market was the leading indicator of the coming storm. The Cassandra’s cited the weak job creation numbers in August (+153,000) and September (+137,000), a sizable pullback in manufacturing and the much-feared hard landing in China. These doubters said that the Fed would have to wait at least until March 2016 to raise rates, in order to determine whether the slowdown was temporary or longer lasting. All of that changed when the government released the October employment report. The labor market bounced back in October, adding 271,000 jobs. It was the best pace of hiring this year and well ahead of the consensus estimate for 180,000. With this report, the three-month average increased by 20,000 a month to 187,000 and the 12-month average stands at 230,000.

The unemployment rate edged down to 5 percent, the lowest level since April 2008 and the broader measure of unemployment, which includes those who have stopped looking as well as those working part-time for economic reasons, edged down to 9.8 percent. While that’s still a hefty number, it is the first time that it's been below 10 percent since May 2008. And average hourly earnings increased by 2.5 percent from a year ago, the fastest year-over-year pace since 2009. If maintained, the extra money could potentially help consumers feel more economically secure and spend more freely.

Before you start the celebration, there is no doubt that the jobs market is not a-ok for everyone. Manufacturing has slowed down, due to plunging energy prices, weakness in China and the emerging markets and a strengthening U.S. dollar. One manufacturing executive based in MN, told me that the sector was in “a second recession.” Indeed, various indicators show that output, although still barely positive, is at the weakest pace since 2009. But there are signs of improvement on the horizon: there has been evidence of a near-term bottoming of Chinese (the Shanghai Composite has gained more than 20 percent since its low in late August) and other emerging economies and commodity prices have stabilized.

In fact, the firming global situation, along with the stronger than expected jobs report, now puts a December Fed rate hike back on the table. Just two weeks ago, the futures markets saw only a 30 percent chance of a December lift-off. A day before the jobs report, that number was over 50 percent and moments after the BLS release, it jumped to over 70 percent.

But as a reminder, the month-to-month numbers can change on a dime and it is really never as bad or good as you think…although the economy appears to be firming, sentiment could quickly sour again. For now, enjoy the good news.

MARKETS:

• DJIA: 17,910 up 1.4% on week, up 0.5% YTD (6th consecutive weekly gain, up nearly 10% during that period…largest six-week gain since 2012)
• S&P 500: 2,099 up 1% on week, up 2% YTD
• NASDAQ: 5,147 up 1.9% on week, up 8.7% YTD
• Russell 2000: 1200, up 3.2% on week, down 0.4% YTD
• 10-Year Treasury yield: 2.32% (from 2.09%)
• December Crude: $44.29, down 5% on week
• December Gold: $1,087.70, down 4.7% on week
• AAA Nat'l avg. for gallon of reg. gas: $2.22 (from $2.18 wk ago, $2.95 a year ago)

THE WEEK AHEAD:

Mon 11/9:

Tues 11/10:

6:00 NFIB Small Business Optimism

Weds 11/11:

Thurs 11/12:

10:00 Job Openings and Labor Turnover Survey (JOLTS)

Fri 11/13:

8:30 PPI

8:30 Retail Sales

10:00 Consumer Sentiment

Tepid Wage Growth Restrains Economy

The U.S. labor market continued to improve in August, though not as much as analysts’ had predicted. Employers created 142,000 positions and the unemployment rate edged down to 6.1 percent, because a bunch of people left the labor force. Before you start worrying the recovery is falling apart, consider this: But for a lousy January (when severe weather pervaded much of the country) and this jobs report, which may have been impacted by unusual events in auto manufacturing and retailing, this year has actually been a very good one for job creation. There have been 1.732 million jobs added in 2014, or an average of 215,375 per month. In the last 15 years, the U.S. has seen average monthly job gains of at least 200,000 in just one year (2005), so let’s not throw in the towel just yet. And taking a longer view, private-sector payrolls have grown by more than 10 million since the jobs recovery began in March 2010. According to the WSJ, “employers outside the government have added jobs for 54 straight months—the longest such streak on records back to 1939”.

Still, there are many problems that persist in the labor market, like 3 million people out of work for more than six months and a historically low participation rate, to name a couple. But perhaps the most vexing for the economy is that wage growth remains stuck at around two percent from a year ago. As a frame of reference, Americans usually see pay increases of about 3 percent during expansions, so the recent recovery, which officially began in June 2009, has been sub-par for growth as well as for wages.

Last week, the Federal Reserve has released its Survey of Consumer Finances for the year 2013. The central bank conducts these surveys every three years, so this is the first comprehensive update we have seen since the recovery has taken hold. There’s lots of fascinating information in the report about income distribution, but let’s cut the chase on the topic at hand: the median American family earned 5 per cent less in 2013 than in 2010 after inflation. (Don’t be distracted by the average, because the results of the top ten percent sway the results.)

And if you want to get really depressed, consider this: median income has declined about 12.4 per cent since the peak in 2004. One of the contributing factors to the consumer credit binge of 2004-2007 was that as incomes slowed, Americans borrowed more to cover the difference. And the housing and credit collapse that helped trigger the financial crisis has taken a big bite out of how much Americans are worth. Median net worth is still 40 per cent below peak. Or put another way by Matthew C. Klein of the Financial Times, “Adjusted for inflation, the typical American is no better off than she would have been in the early 1990s.”

If you are among the top 3 percent who has seen gains in income and net worth, these trends are bad for you too. The reason is simple: there are not enough high earners to carry the economy. We need a broader swath to enjoy growth so that they will spend more freely. The pokey wage growth explains why consumers have become thriftier during the recovery, resulting in GDP growth of about two percent annually, more than a full percentage point below the post-World War II average.

The weakness in consumer spending or the somewhat disappointing August Employment report does not mean that the economy has veered off track. In fact, there is evidence that housing, business spending, exports and government activity are all accelerating. But only when the broad consumer base, which accounts for about two-thirds of overall activity, more fully participates in the recovery, will the country return to trend growth.

MARKETS:

• DJIA: 17,137, up 0.2% on week, up 3.4% YTD
• S&P 500: 2007, up 0.2% on week, up 8.6% YTD
• NASDAQ: 4464, up 0.06% on week, up 9.7% YTD
• 10-Year Treasury yield: 2.46% (from 2.34% a week ago)
• October Crude Oil: $93.45, down 2.8% on week
• December Gold: $1267.30, down 1.6% on week
• AAA Nat'l average price for gallon of regular Gas: $3.44 (from $3.58 a year ago)

THE WEEK AHEAD: More clues about consumer spending will be revealed with the release of the August retail sales report. Economists expect a jump in sales, boosted by cars and an increase in back-to-school shopping. Because how we feel about the economy can be related to how we spend, economists will also be eager to see the preliminary results of the University of Michigan September Consumer Sentiment survey.

Mon 9/8:

3:00 Consumer Credit

Tues 9/9:

Apple event: iPhone 6 and iWatch expected to be unveiled

7:30 NFIB Small Business Confidence

10:00 Job Opening and Labor Turnover Survey (JOLTS)

Weds 9/10:

Thurs 9/11:

8:30 Weekly Jobless Claims

Fri 9/12:

8:30 August Retail Sales

8:30 Import/Export Prices

9:55 Consumer Sentiment

10:00 Business Inventories