Economic Week in Review: Rocky week for the markets as Congress avoids debt default
August 05, 2011
A week that began with the federal government striking a deal to avert defaulting on the nation's debts ended with the release of better-than-expected unemployment numbers. The week also saw the largest one-day drop for the Dow Jones Industrial Average since autumn 2008. Consumer spending fell for the first time in nearly two years, while service industry expansion slowed to its lowest rate of growth in 17 months. For the week ended August 5, the S&P 500 Index fell 7.2% to 1199 (for a year-to-date total return-including price change plus dividends-of about -3.6%). The yield on the 10-year U.S. Treasury note fell 24 basis points to 2.58% (for a year-to-date decrease of 72 basis points).
Unemployment numbers beat forecasters' expectations
The week ended with the release of July unemployment data that showed the addition of 117,000 nonfarm jobs to employer payrolls. The figure beat forecasters' expectations and was a significant improvement from June, when employers added only 46,000 jobs. The U.S. Department of Labor revised its May and June numbers, adding 28,000 jobs to each month's total. The unemployment rate fell from 9.2% to 9.1%.
"The unemployment number feels like a positive surprise given the low expectations for the economy; however, this pace of job creation is still weak for bringing down the unemployment rate significantly and for jump-starting a stronger recovery. Still, positive numbers like these may be enough to avoid the most feared scenario of a double-dip recession over the next few months," Vanguard senior economist Roger Aliaga-Díaz said.
Overall, the private sector added 154,000 jobs for the month, which helped offset the reduction of 37,000 government jobs. Healthy gains were seen in several sectors, including health care, retail, and manufacturing.
Consumer spending drops for first time in nearly two years
Consumer spending fell 0.2% for the month of June, marking the measure's first decline since September 2009. High unemployment combined with slow wage growth resulted in a modest 0.1% increase in personal income-the smallest rise since November 2010. Consumers' uncertainty about the economy pushed the personal savings rate up to 5.4%, its highest level since September of last year.
Construction spending continues to languish
Construction spending rose in June, increasing 0.2% from May, but was still 4.7% below the June 2010 level. Private nonresidential construction led the way, rising 1.8% over May's figure. The lift was attributed to commercial and manufacturing construction. Private residential construction lagged, as spending declined 0.3% from the previous month. Public construction, which is down 9.6% from June 2010 figures, continues to be a drag on the sector.
Factory orders fall
Factory orders slipped 0.8% for the month of June, the second time in the past three months that orders for manufactured goods have decreased. Excluding transportation, new orders increased 0.1%.
Service industry growth slows
Service industry expansion for July was slightly lower than forecasters had predicted. The Institute for Supply Management index of nonmanufacturing activity registered 52.7, a drop from 53.3 in June and the slowest rate of growth for the sector in 17 months, but still above the expansion threshold of 50. Consensus expectations had predicted the July reading would exceed June's.
Manufacturing slides sharply
July's ISM manufacturing index dropped significantly, with new orders reaching their lowest level in two years. The index registered at 50.9. A reading above 50 represents expansion. The decrease marks the fourth time in the past five months the index has declined. Analysts attributed the slide in part to the disruptions in the Japanese supply chain as a result of the devastating earthquake that hit that country in March.
The economic week ahead
Next week's economic news is expected to include a quarterly report on productivity and costs from the U.S. Department of Labor and the Federal Open Market Committee's monetary policy report on Tuesday, an update on international trade on Thursday, and reports on retail sales and business inventories on Friday.
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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
