The latest report from the Bureau of Labor Statistics reveals a decline in nonfarm payrolls, which fell by a net of 54,000 last month (seasonally adjusted). Consequently, the unemployment rate increased to 9.6% from 9.5% in July. Although this payroll decline was less severe than the anticipated drop of over 100,000, it still signals ongoing challenges in a labor market struggling to recover. Positively, the private-sector payrolls experienced a modest increase of 67,000, exceeding expectations of a 44,000 gain. While this improvement is welcome, it remains somewhat underwhelming.
►Bond Bubble: A Sterile Debate
James Montier/The Big Picture
“…unless you believe that Japan is the correct template for the US (i.e., inflation will be zero for the next decade), government bonds don’t offer an attractive return as a buy-and-hold proposition.”
►Tyson’s Keynesian Confusion
Mark A. Calabria/Cato@Liberty blog
“Unlike consumption, which has largely rebounded, investment today is about 20% below its peak. Of course, we should remember that peak was a bubble. The good news is that investment in areas such as equipment and software is slowly, yet steadily, improving. The real hindrance to investments lies within the construction sector, particularly residential, which remains roughly 50% below its peak…
This suggests that unemployment is primarily driven by a mismatch between the skills of the unemployed and the available job openings. You cannot expect to transform a construction worker into a nurse or computer programmer overnight…
Ultimately, creating an environment that fosters business confidence for investment is crucial for boosting employment.”
Jobless claims have slightly decreased last week, dropping by 6,000. While this is encouraging, the total remains high at 472,000 on a seasonally adjusted basis. A single data point tells us little; it’s essential to consider the longer-term trends. There has been considerable volatility recently, but no significant change.
Manufacturing activity showed improvement last month, as reported by the Institute for Supply Management yesterday. This positive development provided an initial overview of August’s economic landscape, leading to a surge in stock prices while bond prices fell. However, the true assessment of the trend will emerge with the government’s upcoming payroll report for last month.
As of July, the monthly consumer price index reported an annualized inflation rate of 1.2%, a significant decline from 2.7% in January, according to the Labor Department report. The downward trend in inflation is clear this year. The critical question remains: are we heading towards even lower inflation rates or potentially deflation?
Bloomberg’s recent article posits that immediate fiscal austerity may not be as beneficial as widely believed. Ireland has implemented significant cuts, but what advantages have emerged? Current arguments do not provide much support for adopting a hawkish stance.
The argument that effective central banking is fundamentally about managing expectations is compelling. A substantial number of formal studies support this notion, and empirical evidence substantiates that this is indeed how the financial world functions.
According to the Bureau of Economic Analysis, disposable personal income (DPI) and personal consumption expenditures (PCE) rose by 0.2% and 0.4%, respectively, compared to stagnant performance in June. This is a positive indication for the summer of 2010. However, the details suggest that there is still room for cautious interpretation.
While momentum may not be the only factor to consider, it holds significant importance. For those interested, the literature from the past 20 years advocates for an appreciation of price momentum—the tendency for prices to continue in the same direction relative to their recent history. Should momentum be the exclusive focus for portfolio management? Certainly not. However, it should not be ignored either.
►After the Fall
Carmen M. Reinhart and Vincent R. Reinhart/working paper presented at Kansas City Fed conference
“Real per capita GDP growth rates are significantly lower during the decade following severe financial crises and synchronous world-wide shocks. The median post-financial crisis GDP growth decline in advanced economies is about 1 percent.”
►Hiring, Manufacturing Probably Cooled on Signs U.S. Recovery Is Stumbling
Shobhana Chandra/Bloomberg
“Hiring and manufacturing probably cooled in August, as companies began to scale back in light of indications that the U.S. recovery is faltering, economists warned ahead of this week’s reports.”
In summary, the current economic landscape presents a challenging scenario, as evidenced by the fluctuations in employment rates, manufacturing activity, and inflation trends. Ongoing analysis and responsive strategies are essential as we navigate through this uncertain environment.