-by Sinclair Noe
DOW + 217 = 13,096
SPX + 25 = 1390
NAS + 58 = 2967
10 YR YLD + .10 = 1.58%
OIL + 3.77 = 92.96
GOLD + 15.30 = 1604. 60
SILV + .67 = 27.90
PLAT + 21.00 = 1411.00
The first Friday of each month is when the Labor Department reports on jobs for the previous month. Today, the report showed the economy added 163,000 net new jobs. It was the best monthly jobs report since February. Estimates had ranged from gains of 95,000 to about 110,000. The payrolls count over the prior two months was revised lower by a cumulative 6,000. Private-sector payrolls rose by 172,000 in the month.
Still, the unemployment rate increased from 8.2% to 8.3%. An alternate measure of employment, known as U-6, which includes discouraged workers and those forced to work part-time because of the weak economy, ticked up to 15% from 14.9%.
Employment gains by sector include 49,000 net new positions in professional and business services, a broad category that includes high-paying computer systems companies and lower-paying temporary-help firms. Manufacturing employment accelerated, adding 25,000 new jobs in July despite reports of falling export orders. Education and healthcare services rebounded from a drop in June, adding 38,000 jobs in July; actually, education and healthcare should be broken down and separated because I'm pretty sure education has been losing jobs and healthcare has been a big jobs gainer. If you want to see confirmation that the housing market is bottoming out or even recovering – look to an increase in employment among teachers – it's a lagging indicator but it is based upon property taxes which fund most of the schools. When the housing market tanked, it hit teachers hard.
Government employment fell by 9,000 as it did in June. Austerity in action. Over the past 3 years, the public sector has shrunk by about 600,000 government jobs. The federal, state, and local public sector jobs as a percentage of the population is now at the lowest level since 1968. If we just went back to the same percentage of public sector workers that we had in 2007, we would have 1.7 million more government jobs.
Labor Secretary Hilda Solis today said that "Proposals sitting on the Hill now for about 10 months could create about 1 million jobs in construction and in the public sector. We can do a lot if we can just sit down and be civil about the discussion and work through it." Yea, that's not going to happen Congress isn’t expected to pass anything before the November elections.
Federal Reserve officials are still poring over data, watching and waiting; apparently satisfied with this new normal. The Fed will meet again in September to decide whether to take further action to try and stimulate the economy; possibly another round of quantitative easing, although I'm not sure how much that will help the jobs picture. There doesn't seem to be a sense of urgency to creating jobs, even though that is their mandate. If the Fed doesn't do their job would they be considered marginally employed?
The economy lost 8.8 million private sector jobs between February 2008 and February 2010 and have recovered 4.5 million jobs since March 2010. We are still down over 4 million jobs. The recovery is only about 50% complete, even though jobs have been increasing for 29 months. We're still not creating jobs fast enough to bring the unemployment rate down; the new jobs being created are just enough to keep up with the increase in population, not much more, sometimes less.
There are still 5.2 million Americans who have been out of work for more than 27 weeks. This is really a very serious problem that must be corrected, at least if we've learned anything from history. (Brad Delong wrote about this)
At first, the long-term unemployed in the Great Depression searched eagerly and diligently for alternative sources of work. But, after six months or so passed without successful reemployment, they tended to become discouraged and distraught. After 12 months of continuous unemployment, the typical unemployed worker still searched for a job, but in a desultory fashion, without much hope. And, after two years of unemployment, the worker, accurately expecting to be at the end of every hiring queue, had lost hope and, for all practical purposes, left the labor market.
This was the pattern of the long-term unemployed in the Great Depression. It was also the pattern of the long-term unemployed in Western Europe at the end of the 1980s. And, in a year or two, it will be the pattern again for the long-term unemployed in the North Atlantic region. (both the US and Europe)
The current balance of probabilities is that two years from now, the principal labor-market failures will not be demand-side market failures that could be easily remedied by more aggressive policies to boost economic activity and employment. Rather, they will be structural market failures of participation that are not amenable to any straightforward and easily implemented cure.
The problems in the Euro-zone will continue to be a drag on the US economy. We're seeing some of that in earnings reports. The ripple effects of the Euro-crisis are complex, but the impact on European consumers may be one of the easiest things to understand. As unemployment rates have soared to a high of 11.2 percent in the euro zone, and over 25% in Spain, consumer spending has plummeted. Even Europeans that have a job are reluctant to make purchases of big ticket items such as cars and appliances or technology gadgets or even an extra cup of coffee. Their reluctance to spend has become a drag on US corporate profits
Yesterday, General Motors reported that it had lost $361 million in Europe in the second quarter, compared with a profit of $102 million in the same quarter last year. Last week, Whirlpool, said its sales fell 7 percent in Europe, the Middle East and Africa from 2011. As a result, overall sales were down more than expected. Starbucks said its fiscal third-quarter profit was 43 cents a share, nearly three cents less than analysts expected, and blamed poor performance in Europe. Ford announced that its total profit in the second quarter had fallen 57 percent. The company said it had lost $404 million in Europe, compared with a profit of $176 million in the region during the same period last year. Ford’s forecast for the near future was even gloomier: It doubled its expected losses in Europe, where auto industry sales are at their lowest in almost 20 years. With several major Spanish banks in dire straits, getting a car loan has become almost impossible for many prospective buyers. Late this afternoon S&P cut its ratings on 15 Italian financial institutions.
Stocks declined yesterday after European Central Bank President Mario Draghi declined to intervene in bond markets, at least he isn't taking immediate action; instead he appears to be laying the foundation for a deal sometime in September. Members of German Chancellor Angela Merkel’s coalition parties signaled they won’t stand in the way of Draghi’s plan to buy government bonds. The German Constitutional Court will presumably lift the injunction against having the Germany signing onto the treaty that creates the permanent rescue fund. The next step is that Spain and/or Italy has to actually ask for aid. Spain’s Prime Minister Mariano Rajoy said at a news conference in Madrid today that he would consider asking the euro region’s bailout funds to buy Spanish debt if it was in the best interests of the country.
Now, one of the big movers today was oil. In addition to a positive jobs report the ISM service sector index increased to 52.6, from 52.1 in June. The dollar dropped to $1.2379 per euro. Toss in a rapidly deteriorating situation in Syria, which is situated in the energy-rich Middle East. The region was responsible for 33 percent of global oil production last year and held 79 percent of proved reserves. Don't forget the Iran Threat Reduction Act; 144 pages of enhancements to existing sanctions; and a possible source of contention. Add in tropical storm Ernesto, headed for the Gulf of Mexico, home to 29 percent of oil production and 40 percent of refining capacity. Earlier in the week we talked about the relationship between the drought, agriculture, and energy. I think it is more than coincidence that during the Great Depression we were also plagued by the Dust Bowl.
And now, a few charts: