Inside the Labor Report

by: John Jansen posted on: August 01, 2008    
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Regarding the labor report which printed earlier this morning, I think that the best one can say is that it was not as bad as some had feared. Once again businesses shed workers, but at a restrained pace. The unemployment rate climbed to a cycle high of 5.7 percent butt that reflects a slight increase in the participation rate.

Most industry segments lost workers and the relative bright spots remain government, leisure and hospitality and education.The index of aggregate hours work fell 0.4 percent and the index of manufacturing hours work dropped 0.1. That presages a drop in Industrial Production.

Average hourly earnings rose 0.3 percent and year over year have risen by 3.4 percent. I published a piece the other day which demonstrated that the trend on the year over year change is down and is about 1 percent lower than it was last year. Consequently, there is no evidence of a wage price spiral which might cause dyspepsia for FOMC members in the days in advance of the FOMC meeting Tuesday.

I think the proper conclusion is that the economy remains in a very soft patch and it will have difficulty gaining traction.

Consumption in the current quarter will be challenged by the lack of fiscal stimulus which has about run its course.

Exports were a big driver of the economy in Q2 but one has to question whether that can be sustained at a similar pace as the economies in the countries for which many of those exports are destined have turned soft, too.

And since consumer spending accounts for so much of GDP growth, it is hard to envision strength there as the job market remains soft, as manifested by the seventh consecutive month of job losses.

It is a simple equation. Businesses hire workers and pay them income. The workers spend the income which begets profits and new investments and new hiring. That cycle has been broken and is in need of repair. Until the cycle is restored the economy will be caught in the grip of restrained growth.

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John Jansen

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This article has 10 comments:

  •  
    texaswiz
    says
    Aug 01 11:54 AM
    Look everybody, the news is out! It has been out for a long time now. Housing is in the dumper. The financials are in the dumper. The economy is loosing jobs. Oil is out of site. Until oil comes down to $65.00-$75.00, nothing is going to improve much.

    The world global economy is driven by the price of oil. All day long, day in, day out, these media writers publish articles as to why this and that is happening. It is nothing new. The same things that drive the worlds economy today, have driven it in the past. Time will heal our problems, but not before there is a lot of bleeding in the streets, such as financials and housing. Housing got into it's miserable shape because of the greadiness of the lenders. That is all that need be said. Now, they are bleeding and some will go away. This is the way it needs to be so the next generation will remember what got them to that point. Banks should not be bailed out by the government because if they know that in advance, there will be no risk for them and as such they will misbehave. We have had a bull market for seven years now. A bear market for the next two is not out of the question. There are no quick fixes, although by the way the media acts, they would have you believe otherwise. Take a series of deep breaths, turn off CNBC, Bloomberg and Fox and just concentrate on the things that matter such as earnings, earnings and lastly earnings.
  •  
    gabe
    borenstein
    Aug 01 12:50 PM
    My Website
    The market is not about softening economy,structurally the stocks reflect recession.This is prevalent economic consensus by the economists and the news media,led by very opinionated CNBC.
    In the real universe,we are not in recession (two consecutive quarterly GDP declines) but deceleration is unnerving.
    The unemployment is a lagging indicator,investors therefore should ignore it.We know what transpired.
    As far I am concerned I have predicted the current events as early as June 2005 (Bloomberg -interview with Mark Gilbert),and again on September18,2007 (Bloomberg TV-Brian Sullivan).
    In the meantime the corporate losses have been addressed.
    Corporate America is coping with the issues quite well.
    The Treasury,the FED and administration are assisting financial and construction sectors quite well.
    Only perpetual bears are whining about what they perceive to be negative issues.
    Not to worry, America,a mega rally is in the cards in the period ahead. The U.S economy is coming back as a mean,lean economic machine.
  •  
    whidbey
    Aug 01 03:14 PM
    Good review and the comments are what we always appreciate.
  •  
    whidbey
    Aug 01 03:17 PM
    Gabe, your cheerleading is very American and amusing. The USA has a serious problem called long term debt. Look at Japan as your model, 18+ years to move inches on the first step to recovery. The recent FASB edit allowing banks to delay revealing their off-sheet debts is just the symptom of a failing policy: That is the USA today.
  •  
    otbricki
    Aug 01 03:49 PM
    Japan is not a valid model; their debt level is 5x the US debt level as a percentage of GDP.

  •  
    iThinkBig
    Aug 01 05:15 PM
    My Website
    Debt level of Japanese tied into higher saving ratio? Xu ti, I agree with you to some degree. But the USA recovering is a function of investment into infrastructure such as energy. Japan has little natural resources to work with.

    The USA has many but 1/2 a government that refuses to exploit the resources. After the election, this will change. But shame on 1/2 our government for not starting now!

    Where will the money come from to build infrastructure? Printing. So citizens will pay this through direct taxation or inflation. It will take a few years to recover but not 18 years as in Japan, although denial part of banking and government which takes longer to correct is similar. What is incorrect is the recovery timeline. Five years and that is IF government cooperates. But 'cause and effect' of why USA going through what Japan did in early 90's is very accurate. Smart comments.
  •  
    wpdragon
    Aug 02 10:40 AM
    ""... the economy will be caught in the grip of restrained growth.""

    GROWTH?

    That's like saying Katrina was merely a small collection of thunderstorms.

    Good grief!

    And Gabe, I'll infer that you were just trying to crack a joke with this ridiculous statement... no one in his/her right mind, even on the RNC payroll, could believe that hooey:

    ""In the meantime the corporate losses have been addressed.
    Corporate America is coping with the issues quite well.
    The Treasury ,the FED and administration are assisting financial and construction sectors quite well.
    Only perpetual bears are whining about what they perceive to be negative iisues.Not to worry America,a mega rally is in the cards in the period ahead .
    The U.S economy is coming back as a mean ,lean economic machine.""

    Absolute absurdity!





  •  
    surgcare
    Aug 02 02:36 PM
    To John Jason People like you keep saying that the rest of the world economy including India and China are slowing down and possibly heading to a recession as the US . Yet no-one provides any proof , not a sinle peice of data , reference point or any objective evidence to prove their point . Can you do this or are you making it up . The facts say deferrent . Most of the american companies who are making money do so because of business from foriegn markets , so the claim that the rest of the world is slowing done strikes me as untrue and a deliberate attempt to mislead the public on how and where to invest .
  •  
    Gary Meade
    Aug 02 02:44 PM
    yeah, yeah, I know broken. But the author of this article is forgetting that inflation is less and oh yeah...don't count out the consumer.
  •  
    Alex
    Sebastian
    Aug 02 04:49 PM
    My Website
    Mr. Meade. I can never tell sarcasm, but I am hoping that was a sarcastic post.

    As far as the article goes, the author seems to be forgetting an enormous part of the "simple equation". Well run businesses do discounted cash flow analyses of investment opportunities. When their cost of capital decreases (the goal of the Fed cutting rates), more investments become profitable and they are made, which leads to more employment, jump starting your cycle. Once the credit crisis ends and banks begin lending to businesses at reasonable rates, the cycle will start again.
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