Deller's two cents: mostly bad news this week, but remember as a rule it takes three reporting periods moving in the same direction to indicate a trend. Most economists still do not think we are heading into a "double deep" or "W-shaped" recession, but rather a painfully slow and rocky recovery.
Economic Week in Review: Uncertainty abounds as job losses mount August 06, 2010
The economy has continued to struggle, shedding 131,000 jobs in July. While the unemployment rate remained at 9.5% last month despite the job losses, this was most likely due to a drop in the number of people seeking work. Most of the other economic news that came out this week was also negative, as factory orders fell, the manufacturing sector lost momentum, and personal income was flat. Two exceptions to the otherwise disappointing news were construction spending and the service sector, both of which showed signs of recovery. For the week, the S&P 500 index rose 1.8% to 1,122 (for a year-to-date total return-including price change plus dividends-of about 1.7%). The yield of the 10-year U.S. Treasury note fell 8 basis points to 2.86% (for a year-to-date decrease of 99 basis points).
Job losses continue in July as unemployment rate holds steady
An additional 131,000 jobs were lost in July, the second consecutive monthly decline. The news was not unexpected given the elimination of 143,000 temporary government census worker positions and a loss of nearly 50,000 jobs from state and local government payrolls. The most disappointing news, however, was private employment, which increased only 71,000 and was well off economists' forecasts of around 100,000.
According to Vanguard economist Roger Aliaga-Díaz, it's not just the top-line payroll numbers that are troubling: "We need to consider permanent jobs. We not only have weaker-than-expected private sector job creation, but also saw significant job losses in state and local governments. The combined net creation of permanent jobs from both sources is a meager 21,000 in July. As a reference, the U.S. economy needs to stay in the proximity of 120,000 new jobs a month just to prevent the unemployment rate from increasing."
The overall unemployment rate remained unchanged in July at 9.5%, most likely the result of fewer people seeking work.
Construction spending surprises
June construction spending was one of the few bright spots this week, rising 0.1% above the revised May level. Having forecast a modest decline for the month, economists welcomed the news.
Bolstered by another infusion of federal stimulus dollars, public construction spending was the key factor-increasing 1.5% and more than offsetting declines in both private residential and nonresidential construction spending, which fell 0.8% and 0.5%, respectively.
Despite the good news, construction spending remains well below June 2009 levels; private nonresidential construction, in particular, is down
nearly 25%.
Service sector rebounds while manufacturing loses momentum
Pointing to a rebound in the service sector, the Institute for Supply Management's Non-Manufacturing Index increased to 54.3 in July from 53.8 in June. The news represents the first monthly increase since March. Employment and new orders were key to this improvement.
The news was not as positive for the manufacturing sector, as ISM's Manufacturing Index fell for the third consecutive month. Last month's
drop in new orders to 53.5 from 58.5 was particularly troubling, since it may foreshadow a slowdown in production. The fall in imports was also
problematic and may signal a potential drop in demand.
Personal income and spending level off
Personal income was flat in June, as spending growth continued to moderate and wages fell slightly. This environment likely contributed to
stagnating core consumer prices-it was the first month they failed to rise since March 2009. On the positive side, the savings rate rose to
6.4%. Overall, the news suggests moderating spending growth and an uncertain consumer outlook.
Factory orders fall
Factory orders fell 1.2% in June, providing further evidence of a slowdown in manufacturing. The drop was broad-based, as new orders for
both durable and nondurable goods fell by similar levels. Despite this news, many economists still believe that the data on core capital goods
(nondefense goods, excluding aircraft) suggest strong business investment and an eventual rebound in hiring.
The economic week ahead
Economists will be busy next week, as key reports on the Consumer Price Index and retail sales come out on Friday. Other key economic
releases include information on productivity and costs (Tuesday), the trade deficit (Wednesday), and business inventories (Friday). Also on
Tuesday, the Federal Open Market Committee meets to determine the near-term direction of monetary policy.
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Steven C. Deller
Professor and Community Development Economist
Department of Agricultural and Applied Economics
515 Taylor Hall --- 427 Lorch Street
University of Wisconsin-Madison/Extension
Madison, WI 53706
608-263-6251
"Conformity can be costly in a world of uncertainty"
Nobel winning economist Douglass North
Recently published: Targeting Regional Economic Development
For more info: http://www.routledge.com/9780415775915
