5 Reasons Banks Are Preparing For An Upswing in the Economy

For the first time in a long time, the labor numbers released last week by the Bureau of Labor and Statistics painted a positive picture of the labor market with some weakness in consumer spending sector-related jobs. The economy is improving, but how much? The economy head-faked us in 2010, only to drop again in 2011. These latest numbers are for real – the economy is improving.

Goldman Sachs released its Global ECS Research report earlier this week which paints an even brighter picture of how the economy is performing. Goldman expands on the payroll reporting done by ADP and the government to include the “household employment measure,” a survey of 60,000 homes. This survey is even more accurate in referencing employment numbers because it includes self employed and contract workers not included in other reports. 

1) Employment was up a “whopping 879,000,” when adjusted to include the household report, much more than the already robust 227,000 payroll jobs that were higher than expected; this includes people who started new firms and contract workers, neither of which are included in previously released reports.  The higher number of contract workers is attributed to the mild winter the US has had.

2) Even the weather has helped. “Warm weather so far this winter has provided a cumulative boost of perhaps 100,000 to the level of payrolls, and likely somewhat more to the household survey” says the report.

3) Firms are at top productivity and have reached the maximum amount of work they can squeeze out of their existing workforce. Firms are now forced to hire new employees to increase output.

4) Surprisingly, the average hours per week in the manufacturing sector is at its highest level since 1945, along with an expected uptick in consumer spending and weak inflation provide an excellent foundation for year two of the recovery to build on.

5) Finally, evidence shows people are starting their own businesses.  Small business is the backbone of the American economy. This, combined with a rise in consumer spending, gives us a lot of hope for the future.

Despite all of this good news, there are still a few signs that the recovery may stall. The U.S. trade deficit widened in January, to its highest level in three years. After virtually continuous declines since last summer, unemployment claims unexpectedly rose to 362,000 the week ending March 3rd after ticking up to 354,000 the prior week.                                                                    

But the bad news is outshined by the good news. Goldman forecasts that the second quarter will bring real GDP growth of 2.0%, revised upward from the original forecast of 1.5%.

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