Deller's two cents:  The very weak job numbers are casting a huge shadow over other indicators painting a more positive picture.  Corporate are looking good, stock market is strong, retail sales numbers look ok, some evidence that the housing market has stabilized, surveys suggest firms are talking about hiring in the near future, but the weak jobs numbers overshadow everything else.

Economic Week in Review: Stalled job market leaves recovery in low gear

July 08, 2011

The second month in a row of much-lower-than-expected job creation dimmed hopes that the economic recovery will soon pick up speed. Manufacturing showed signs of strength-orders picked up and factory employment rose modestly-but consumers, small businesses, and the public sector remained constrained by concerns ranging from the housing market to the debt and deficit struggles of governments at home and abroad. "The extremely weak job numbers are a real concern," said Vanguard economist Roger Aliaga-Díaz. "With so much uncertainty on the labor market front, it'll be difficult for consumers to become an important driver of the economic recovery during the second half of this year, as had been expected." For the week ending July 8, the S&P 500 Index rose 0.3% to 1,344 (for a year-to-date total return-including price change plus dividends-of about 8%). The yield on the 10-year U.S. Treasury note fell 19 basis points to 3.03% (for a year-to-date decrease of 27 basis points).

Possible encouragement from factory orders

Greater demand for manufactured goods in May provided some evidence that the economic recovery may perk back up this year. Both orders and shipments of durable items-such as cars and refrigerators-rose more than the Commerce Department had initially reported. Meanwhile, an increase in orders for all factory goods-durable as well as nondurable-followed a decline in April. With consumers and construction struggling, manufacturers have been shouldering much of the recovery so far.

Service sector displays little momentum

Signs of strength in manufacturing didn't extend to the nation's service economy. The Institute for Supply Management's nonmanufacturing index-which in addition to service firms covers agriculture, construction, mining, and utilities-suggested that lackluster demand was impeding growth in services, which account for most U.S. employment. Though the index showed the service sector had expanded in June, the reading was lower than in May and below what economists had expected. Most notable was a sharp drop in backlogged orders-a sign of slower activity.

Job market slows to a crawl

With the economy in June adding far fewer jobs than forecast-18,000, versus 88,000 expected-the combined effect of widespread government layoffs and slow private job creation is becoming more visible. Moreover, the Labor Department reduced the number of new jobs reported for May from an already-low 54,000 to 25,000. "We would need around 200,000 jobs created each month to see any improvement in the unemployment rate," Aliaga-Díaz said. The rise in the unemployment rate occurred even though the labor force shrank slightly-which can be a sign that more people have stopped looking for work. 

The economic week ahead

The Federal Reserve, which will release the minutes of its June meeting (Tuesday), will also be watching whether underlying inflation (Thursday and Friday) remains subdued as expected. Another Fed report (Friday) on industrial production for June will help gauge whether manufacturing is expanding enough to turn around some of the recent slowdown in hiring and overall economic growth. The latest trade numbers (Tuesday) will signal the strength of U.S. exports, and retail sales (Thursday) may suggest whether consumers are weathering the sluggish job market well enough to spur business.

 

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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
"I started out with nothing and I still have most of it left."
Seasick Steve