Monday, September 5, 2011

OSK Research: No recession in US as yet

KUALA LUMPUR: OSK Research does foresee a recession in the US as yet despite the uninspiring data including the August employment report last Friday, Sept 2.

It said on Monday, Sept 5 its main concern was a prolonged period of subdued growth in economic activity.

The research house said the US August jobs data, at least on a headline-basis, sparked another wave of concern surrounding the state of the US economy.

Specifically, overall non-farm payrolls were flat on its back, with continued net shedding in government employment of 17,000 offsetting lacklustre net hiring by the same amount in the private sector (there were also net downward revisions of 58,000 in the prior two months, primarily in government).

However, OSK Research said the softness in private payrolls was also partially magnified by the Verizon strike, which temporarily removed around 45,000 jobs from the telecommunications sub-sector.

In the absence of the strike, the near-term trend in private payrolls would have been roughly 100,000 through August, still a downshift from more than 150,000 over the prior three to six months.

'But our calculations also suggest that the recent moderation in private hiring might have been less widely diffused or more narrowly confined to some industries. ''If so, this could lessen the risk that the soft payroll prints of late have become more entrenched.

'Nevertheless, while employment growth has been undeniably sluggish, unable to meaningfully dent the unemployment rate, it is still inconsistent with an imminent business cycle recession at this time,' it said.

OSK Research highlighted also the employment details from the household survey -- linked to the calculation of the unemployment rate -- appeared much less dire.

Although the headline unemployment rate held at 9.1% in August, the broader measure of employment-to-population ratio actually ticked up a tenth to 58.2% (though the level remains extremely depressed).

It said household employment measures -- in the usual release and the alternative definition-adjusted data (to account for the differences in household and payroll employment surveys) -- together registered an average increase of more than 230,000 in Aug.

OSK Research said if the labour participation rate held steady in Aug at 63.9% (the lowest since 1984), all else equal, the unemployment rate would have ticked down a tenth to 9%.

'And the data on gross flows still indicate that firms have been less inclined to fire workers, but also generally reluctant to increase the pace of hiring in Aug. ''The preceding details, again, while uninspiring on balance, seem incompatible with a recession environment at this juncture,' it said.

The research house said the August employment report appear to be suggestive of real GDP growth in the vicinity of 1%, and nominal personal income growth of less than 3% in 3Q11.

Alternatively, its High-Frequency Activity Tracker still anticipated economic growth between 1.5% and 2.0% in 3Q11 at this time.

However, the main risk was a prolonged period of subdued growth in economic activity.

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