TIME Economy

U.S. Adds 217,000 Jobs, Unemployment Remains at 6.3%

May marks the fourth straight month of jobs growth in 2014

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The U.S. added 217,000 jobs in May, according to the federal jobs report released Friday, but the unemployment rate held steady at 6.3%. That rate matches April’s figure, the lowest seen in five years.

May marks the fourth straight month of jobs growth in 2014, with the economy adding on average about 214,000 jobs per month this year. The Bureau of Labor statistics report aligns with analysts’ predictions that the May report would reflect moderate growth following April’s strong report.

Private-sector employment rose by 179,000 jobs in May, payroll service firm ADP reported Wednesday.

April’s jobs numbers were adjusted to show 282,000 jobs were added last month, down 6,000 from the 288,000 additional jobs previously reported.

TIME Economy

Job Market Dropouts May Be Rejoining the Workforce

People who had given up on looking for a job may be re-entering the the job market, an encouraging sign for the recovery.

Even as unemployment rates have inched towards pre-recession levels, recovery skeptics have pointed to the high number of people who have given up looking for a job and are, as a result, left out of official employment numbers.

Now, there’s some evidence to show even that trend is reversing, Reuters reports.

The share of people who have a job or are looking for one rose in a majority of U.S. states in the six months leading up to April of this year, according to a Reuters analysis of government data, marking the first upswing in those numbers in six years.

The rising participation rate likely means that people who had given up on looking are now confident enough to re-enter the job market, an encouraging sign for the economic recovery.

The data is not conclusive, according to Reuters. But participation rates appeared to have risen in a diverse set of states, including Texas, Florida and West Virginia. The 32 states where the figures rose also represent a majority of the U.S. population.

[Reuters]

TIME Economy

One Ohio City’s Growth Strategy? Immigrants

Dayton puts out the welcome mats

In old North Dayton, It’s easy to spot the newcomers. Over the past few years, about 3,000 Turkish refugees have settled here and set about rebuilding this blighted neighborhood. Decaying houses with weed-choked lawns are giving way to tidy dwellings with colorful paint jobs. As his minivan winds through the streets, businessman Islom Shakhbandarov points out the white picket fences the Turks favor–a sign that they have achieved the American Dream. “This,” he says from the front seat, “is the Ellis Island of our region.”

Southwest Ohio has never been much of a melting pot. Even now, Dayton’s proportion of foreign-born residents is among the lowest of any large U.S. city. But economic decline is the mother of reinvention. Dayton’s population has plunged 40% since 1960, as the loss of manufacturing jobs hollowed out its middle class. “We were hit really hard,” says city manager Tim Riordan. And so in 2009, Dayton began plotting an unlikely path to renewal–growing its economy by courting immigrants.

Two years later, the city adopted a series of policies designed to lure new residents: tutoring for foreign students, support networks to help entrepreneurs clear complex bureaucratic hurdles, and translation services to help immigrants integrate into the community. Libraries began stocking books in new languages. Police officers were directed not to check the immigration status of victims or witnesses of crimes, or of people suspected of minor offenses.

The push to repopulate the city by wooing foreigners was an unusual move at a moment when states from Alabama to Arizona were requiring cops to detain suspected undocumented immigrants. City officials braced for an outcry against the proposal, but few residents balked. (The only pushback at public meetings came from nonresidents who warned that the city could become a magnet for the undocumented.) The initiative, known as Welcome Dayton, won unanimous support from the city commission. “We made a policy decision to be open,” says Dayton Mayor Nan Whaley. “This is a city that will welcome you.”

Word of mouth helped. A handful of Ahiska Turks, a stateless ethnic minority that was granted refugee status to escape persecution in Russia, resettled in Dayton in 2006, lured by cheap housing and solid jobs. They told friends that neighbors were tolerant of their Muslim faith. Now the Turkish community’s leaders have become some of Dayton’s best boosters, working to court foreign investment and pumping their own cash into the local economy through new trucking, logistics and real estate businesses.

Dayton is also home to robust communities of Central Africans, Indians and Hispanics, many of whom have started businesses or cultural agencies of their own. City officials have sought to stitch them into the cultural fabric with celebrations of diversity like a new annual parade to commemorate the Mexican Day of the Dead. And the lenient approach to law enforcement has soothed nerves. “They’re not chasing people or trying to focus on their legal status,” says Gabriela Pickett, an art-gallery owner and Mexican immigrant who has lived in Dayton since 2001. “That’s a battle they don’t want.”

None of this has required much money, and the economic gains have been relatively modest. But the new approach is paying off. In the year after enacting the policy, Dayton’s immigration rate grew by 40%, nearly six times the state average. The U.S. Chamber of Commerce lauded Dayton as one of seven “enterprising cities.” And Dayton has plans to expand its approach by recruiting immigrant entrepreneurs, using a visa program that offers green cards to foreigners who invest in rural or cash-strapped areas.

Dayton’s model is attracting copycats elsewhere in the Midwest. And the experiment has “changed the culture and the way people perceive immigrants,” says Tony Ortiz, vice president of Dayton’s Hispanic Chamber of Commerce and the head of Latino Affairs at nearby Wright State University. “Instead of a burden, they see these folks as potential taxpayers and contributing members to the area. Instead of chasing them away, all we have to do is make them feel welcome.”

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TIME Economy

U.S. Workers See a Surge of New Hires, Poll Finds

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Lauri Wiberg—Getty Images

A swelling proportion of workers say their companies are hiring, not firing

Job creation in the United States has hit a six-year high according to a new survey out Wednesday.

The Gallup job creation survey asks workers if they’ve witnessed more hiring or firing at their workplaces to create an index score that rises and falls with the eyewitness accounts of the nation’s workforce. In May, the workers reported a happy scene: 40% saw hiring, dwarfing the 13% who saw firing. That brought the index to 27, its highest level in six years.

The encouraging news was reinforced by another measure of job growth. TrimTabs Investment Research said the U.S. economy added 229,000 jobs in May, following solid gains in March and April. “Employment growth has exceeded 200,000 jobs for three consecutive months for the first time since the spring of 2011,” said David Santschi, Chief Executive Officer of TrimTabs Investment Research.

MONEY Shopping

If You’re Average, You’ll Spend $98 Today

Daily consumer spending averaged $98 in May, the highest it has been in six years -- an indication that the economy is heading in the right direction.

If you’re like most consumers, according to a recent Gallup poll, you reported spending an average of $98 in May. That’s $10 higher than April, and the highest monthly average seen since early 2008.

Historically, consumer spending in May tends to be higher than in most other months, as people pile up expenses related to the start of summer—yard work, spring cleaning, barbecues, etc. December is usually a close second, what with holiday parties and gift shopping. Sure enough, the most recent three-day average high for spending was measured over Memorial Day weekend (daily spending: $134), followed by a trio of days right before Christmas 2013 (daily spending: $129).

Since 2009, when consumer spending in May was measured at just $63, there’s been a consistent increase, rising to $90 in May 2013 before hitting $98 this year. In the big picture, the trend may be viewed as an indication of an economy on the upswing—especially when other data, including improving confidence among small and big businesses alike, are factored in.

Another interesting indicator is that the national birth rate, which has fallen over the course of five years and has been viewed as a sign of larger economic strife and uncertainty, appears to have hit bottom. Births were up slightly in 2013 compared to the year before, an indicator that people have been feeling (slightly) better about bringing a baby into the world lately, even with all of the costs and responsibilities of being a parent.

MONEY Economy

WATCH: $15 Minimum Wage in Seattle Will Be Highest in U.S.

Seattle's city council unanimously approved legislation to raise the local minimum wage to $15 an hour.

MONEY The Economy

5 Reasons the Economy is Not Headed for Recession

Growth will soon resurface. Cultura RM/Liam Norris—Getty Images

Despite disappointing GDP numbers, the economy is firmly headed higher.

The economy may have slipped out of gear, but it’s not in reverse.

True, a government report released late last week showed that the U.S. economy did actually contract at an annual rate of 1% at the start of the year, which was much worse than consensus forecasts for a 0.5% decline. That marked the first time gross domestic product had actually shrunk since the first quarter of 2011.

This would explain why market interest rates have been falling so much lately — yields on 10-year Treasuries have sunk from 3% to 2.53% this year. In periods of slow or no growth, investors routinely favor fixed income over equities, which pushes bond prices up and yields down.

Before you start bandying about the “R” word, though, let’s keep things in perspective.

A recession is loosely defined by two consecutive quarters of GDP contraction (actually, it’s officially determined by a group of economists at the National Bureau of Economic Research). The economic data released last week represent just one quarter of activity. Plus a survey of 42 economic forecasters by the Federal Reserve Bank of Philadelphia found strong expectations that the economy snapped back in the second quarter. In fact, the economy is thought to have expanded 3.3% in the spring.

What’s more, forecasts for GDP growth for the remainder of the year are on the rise. In the third quarter, the economy is now expected to expand 2.9%, not 2.8% as was previously thought, according to the Philly Fed survey. And fourth-quarter GDP is expected to rise 3.2%, up from earlier forecasts of 2.7%.

Also, there are at least five economic indicators that would confirm the economy is on much surer footing than either the first-quarter GDP report or bond yields would indicate. Among them:

1) The manufacturing economy is improving.
If the economy were on the verge of reversing course, you would at least start seeing the nation’s industrial sector flatten out. Yet as you can see below, that’s not happening.

US Industrial Production Index Chart

US Industrial Production Index data by YCharts

Nor do investors expect it to, which explains why Wall Street continues to bid up shares of economically sensitive sectors like industrials and basic materials faster than the broad market.

^SPX Chart

^SPX data by YCharts

2) Consumers are getting stronger, not weaker.
If consumer spending represent two thirds of the nation’s GDP, then it would be difficult for the economy to slip into recession if households are loosening up their purse strings. Well, retail sales for discretionary purchases (things you don’t really need) with cash has been growing 2%. Meanwhile, discretionary spending on items requiring financing is up much more—5.6%. “Consumers are flexing their muscles again,” says Jack Ablin, chief investment officer for BMO Private Bank.

3) Small business confidence is growing.
One sign the economy is not in dire shape is that “corporate confidence—even among smaller companies—is improving,” says Liz Ann Sonders, chief investment strategist at Charles Schwab. Small companies are often the canaries in the coal mine of a lousy economy. A year before the economy crashed into recession in December 2007, the NFIB Small Business Optimism was already in decline (in fact, it had been falling gradually since the end of 2005). So far this year, the index has climbed, from a reading of 91 in February to 95.

4) Big business is also gaining confidence.
Not only can you see that in booming merger & acquisition activity, but corporations are slowly but surely adding to their payrolls.

US Change in Nonfarm Payrolls Chart

US Change in Nonfarm Payrolls data by YCharts

5) Economic signs that normally offer clues about future activity are running positive, not negative.
The Conference Board’s index of leading economic indicators “has climbed for the twelfth time in 13 months to yet another new cyclical high,” notes Ed Yardeni, president and chief investment strategist at Yardeni Research.

By contrast, in the 12 months leading up to the start of the 2007-2009 recession, the leading economic indicators index had been precipitously falling.

So buck up.

TIME Economy

Americans Splashing The Cash At 2008 Levels, Survey Finds

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Tom Hahn—Getty Images

Gallup survey says consumer spending hit a six-year high in May, a significant $10-a-day increase on the month before

American consumer spending hit a six-year high in May, according to survey results released by Gallup on Monday.

Americans reported spending $98 a day, spiking $10 above the April average and climbing higher than any other point since May of 2008.

Gallup noted that spending was buoyed, in part, by a surge of Memorial Day weekend shopping. Past surveys have typically registered $3 to $6 jumps, but this year, with spending jumping by $10, the results suggest something deeper is stirring in the economy, other than a sudden demand for hot dogs.

TIME China

The Legacy of Tiananmen Is Holding Back China’s Economy

A security guard stands next to pictures of China's former President Jiang Zemin and late paramount leader Deng Xiaoping at an exhibition in Beijing
A security guard stands next to the pictures of China's former President Jiang Zemin, right, and late paramount leader Deng Xiaoping at an exhibition to celebrate the 90th anniversary of the founding of the Chinese Communist Party in 2011 Jason Lee—Reuters

To maintain its growth miracle, the Chinese leadership can no longer separate political and economic reform

As tanks rolled through the pro-democracy protesters on Tiananmen Square on June 4, 1989, the message from the Chinese Communist Party couldn’t have been clearer: Beijing would tolerate economic change, but not political change. A decade earlier, paramount leader Deng Xiaoping had embarked on the free-market reform that would spark China’s economic miracle.

But on that fateful June day, when he crushed the Tiananmen movement, Deng also eradicated any hope that political liberalization would accompany the government’s quest for prosperity. In fact, Deng believed political reform would undermine China’s economic progress, and the primary purpose of his shift towards “capitalism with Chinese characteristics” was to strengthen the Communist Party’s grip on power.

Twenty-five years later, the attitude of China’s leadership has remained unchanged. President Xi Jinping has proposed a sweeping slate of economic reforms that would hand more influence to private companies and free up flows of capital. On the political side, however, there are no signs that Xi feels any differently than Deng had in 1989. Xi has (arguably) grasped more power in his hands than any Chinese leader since Deng himself. The government tosses critics in prison, squashes any independent social movement, and has even intensified censorship of the Internet and social media. The Communist Party insists on reigning unchallenged.

Looking solely at China’s economic record, the Communist Party can make the case that capitalist success is not linked to democracy, as many in the West have always believed. Since 1989, China’s authoritarian leaders have engineered one of the greatest economic achievements in history. The economy is 20 times bigger today and now ranks as the world’s second largest. Hundreds of millions have been lifted out of poverty. Chinese companies, from telecom giant Huawei to PC maker Lenovo to e-commerce behemoth Alibaba, have become world-beaters. However, that fundamental question ­— can economic and political reform be separated? —­ has not gone away.

In fact, 25 years after Tiananmen, it is more relevant than ever. After three decades of rapid economic development, the Chinese economy is a vastly different place. Its growth has been based mainly on plentiful labor, low costs, and a (restricted) opening to foreign business. But that model has run out of steam. In fact, the economy is facing its biggest challenges since the start of Deng’s reforms more than three decades ago. Wages have escalated, eating into the competitiveness of China’s export machine. Debt has risen to dangerous levels. A property boom looks about to bust. An uncontrolled shadow banking sector has sparked widespread fears of a financial crisis.

Excess capacity haunts many industries. Private businessmen remain starved of capital and opportunities. Many of these dangers are the result of incomplete market reform. The bureaucrats of China’s “state capitalism” maintain too much control over the activities of banks and companies. They protect uncompetitive state enterprises and politically connected cronies, apply regulations erratically, and influence who gets bank finance and who does not.

To get itself out of this mess, the Communist Party is going to have to do what it doesn’t do so well: let go. Banks must be allowed to allocate money based on financial fundamentals, not political guanxi or bureaucratic fiat. Companies have to become more innovative and creative, which requires greater freedom of information. Protected and subsidized state industries have to be opened to private and foreign competition. Money must be allowed to flow more freely in and out of the country. Rule of law must be ensured to convince businessmen to take risks and invest in new ideas. That demands a more independent judiciary. The Communist Party is aware of the need for further reform.

In an important party plenum in November, Xi and his policy team pledged to loosen up capital markets, reform the financial sector and the courts, and support the private sector. Yet the pace of implementation has been glacial. The party has to make uncomfortable choices between holding fast to the levers of control and fixing a broken economy.

China’s leaders can no longer have it both ways. The banks cannot be expected to both allocate money more productively and still take orders from meddlesome cadres. Entrepreneurs cannot be expected to launch the next Google in an environment where the Internet is controlled, creative thinking is discouraged and the courts can’t protect them.

The verdict of Tiananmen, then, is coming under strain. If China is to lift itself into the ranks of the most advanced economies and rejuvenate its competitiveness, its people require the freedoms Tiananmen’s protesters fought for 25 years ago. The Communist Party has to wake to the fact that Tiananmen’s legacy is holding the nation back.

MONEY stocks

Stocks Are Slumping. You Just Don’t Know It Yet

Here are three reasons the little-noticed slide in small stocks is likely to spread to the broad market.

Psst…The stock market may be slipping into a correction. Pass it on.

This seems like a silly thing to say, since a “correction” is technically a 10% drop in stock prices and both the Dow Jones industrial average and the Standard & Poor’s 500 index of blue chip stocks are at record highs. Not only that, the S&P 500 is up nearly 5% so far this year and 19% over the past 12 months.

But if you examine the market more closely, you’ll see some key segments that are getting close to or have crossed the 10% threshold recently.

Among them: small-company stocks, which tend to thrive when investors favor risk — or are egged on by the Federal Reserve to take chances with the availability of cheap credit. The Russell 2000 index of small-caps lost more than 9% of its value between early March and mid May before recovering a bit in last week’s rally:

^RUT Chart

^RUT data by YCharts

The slump is more pronounced for small growth-oriented companies, which are favored by aggressive, bullish investors. Small growth stocks fell as much as 12% between early March and mid May and are still dangerously close to the 10% level:

^RUO Chart

^RUO data by YCharts

This is also true for the smallest of the small stocks — shares of high risk but potentially high reward tiny companies that are only embraced by the market’s most aggressive lot:

^RTM Chart

^RTM data by YCharts

True, these are small slivers of the market and the broader indexes such as the S&P 500, the Dow, and the Nasdaq composite index are all up modestly so far in 2014 and up by double-digits over the past 12 months.

The recent behavior of the faltering areas of the market, though, could be a harbinger of what’s to come. “A stealth correction has been unfolding,” says Craig Johnson, a managing director at Piper Jaffray, and he believes the slide will likely extend to the Dow and S&P.

Here are three reasons this is likely to happen:

1) Small stocks tend to lag as bull markets get tired. Small caps have historically been a fairly reliable late-cycle underperformer. Indeed, the last two times small stocks dramatically underperformed was in 2007 (just as the financial crisis struck) and the late 1990s (leading up to the bursting of the dot.com bubble in 2000).

2) The performance gap between large-cap and small-cap stocks is widening. Since Jan. 1, the large cap S&P 500 index has returned nearly 5% while the small-cap Russell 2000 index is down nearly 2%. “The continued divergence between the Russell 2000 index and the popular large-cap indices is a clear indication of weakening breadth and slowing momentum, and suggests investors are making an attempt to reduce portfolio risk by rotating assets toward the traditionally defensive areas of the market,” says Johnson.

In fact, he and his team at Piper Jaffray studied past periods when small stocks underperformed blue chip shares by such a wide margin and found that in years when this occurred, the broad market eventually experienced a correction that typically lasted two and a half years and cost stocks more than 12% of their value.

3) The broad market is way overdue for a correction. “The S&P 500 will soon have gone 32 months without a decline of 10% or more, versus the average span of 18 months since 1945 and a median of 12 months,” says Sam Stovall, managing director of U.S. equity strategy for S&P Capital IQ.

There have been only four other times since World War II that the stock market went longer without a serious pullback.

Alas, those stretches ended with a bear market in 1966, the Crash of 1987, a correction in 1997, and the mammoth 2007-09 bear that lopped off more than half of the S&P 500’s value.

Of course, there’s no rule that says market corrections must turn into full-fledged bear markets.

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