Today’s employment report paints a bleak picture. While it may not signify a catastrophe, it represents the most discouraging jobs update from the Labor Department since the formal conclusion of the Great Recession in June 2009.
The initial economic report for August provides little hope that we will escape the current sluggish growth phase anytime soon. Today’s update on the ISM Manufacturing Index shows only a slight expansion in the sector. The index fell to 50.6 last month, down from 50.9 in July. Although a reading above 50 signifies growth, the index’s decline to its lowest point in over two years offers no cause for celebration.
New jobless claims decreased by a seasonally adjusted 12,000 last week, landing at 409,000. However, this drop is unlikely to be perceived as more than mere statistical noise. This leading economic indicator has been trapped in a pattern for months, and one significant decline will not be enough to sway public perception. Adding to the complexity, part of this decrease might be attributed to the conclusion of the Verizon strike, which had previously inflated claims in early August. It’s a cyclical pattern of ups and downs.
While the challenging summer might be behind us, its scars remain, evidenced by another downturn in stocks during August. For the fourth consecutive month, global equity markets declined. U.S. stocks (Russell 3000) fell by an alarming 6.0%, marking the worst monthly drop since May 2010. International equities performed even worse, with developed markets (MSCI EAFE) down 9% and emerging markets (MSCI EM) dropping 8.9%. The trend of continuous selling has persisted since May.
Are the bonds from Springleaf Mortgage Loan Trust 2011-1 considered safer than U.S. Treasuries? According to Standard & Poor’s, the answer is yes. Bloomberg reports: “Standard & Poor’s is assigning higher ratings to securities backed by subprime home loans—investments that previously triggered the most severe financial crisis since the Great Depression—compared to those given to U.S. government securities.”
According to the ADP, private nonfarm employment growth experienced a slowdown in August. As stated in the ADP National Employment Report, “the trend in employment has moderated somewhat at a pace that is insufficient to maintain a stable unemployment rate.” This aligns with the recent decline in overall economic activity, and the numbers suggest we should temper our expectations for this Friday’s government employment report.
Consumer confidence has dropped to its lowest level in over two years, as reported by the Conference Board reports. This is a concerning sign for the economy. While many aren’t surprised given the numerous challenges plaguing the economy, some analysts contend that such metrics may not be particularly valuable. “Consumer confidence is often not a reliable predictor of spending,” says Edward Meir, senior commodities analyst at MF Global, who adds, “People might claim they’re not feeling great, yet continue to spend.”
He’s a professor of economics and public affairs at Princeton University and has been nominated by President Obama to lead the White House Council of Economic Advisers. “I have complete confidence in Alan as he steps into this crucial role within my economic team,” the President stated yesterday when announcing Krueger’s appointment. “I count on the Council of Economic Advisers for unbiased analysis and recommendations drawn from the best available evidence—not influenced by politics or special interests—to benefit the greatest number of people in this country.”
Market bubbles pose significant dangers when they burst, but they are equally treacherous for investors making poorly timed decisions about when to exit. Pimco’s Bill Gross, manager of the world’s largest bond fund, the Total Return Fund, can testify to this. Back in February, he sold all the Treasuries in the fund and compounded his position with derivatives. He now acknowledges that this was a “mistake,” according to The Wall Street Journal.
Today’s report on spending and income for July provides additional evidence that the recent slowdown in economic activity is unlikely to spiral into a recession. Personal consumption expenditures (PCE) surged by 0.8% in July, marking the largest monthly increase in nearly two years and a notable rebound from June’s small decline. Even when adjusted for inflation, PCE rose by a robust 0.5%. While disposable personal income (DPI) showed more modest growth, increasing by 0.3% last month compared to 0.2% in June, it still reflects a reasonable performance. Although macroeconomic trends can be unpredictable, these numbers do not signal the onset of a recession.
