Getting Past the Soft Patch
Watching CNBC this morning, as I usually do on “Jobs Friday,” was painful. There were audible gasps from the assembled panel of economic luminaries when the 8:30 announcement from the Bureau of Labor Statistics revealed a shockingly low 18,000 net new payroll jobs created last month – well below the consensus forecast of 125,000. A few of the lowlights:
The composition of the 18,000 jobs included 57,000 in the private sector partially offset by a loss of 39,000 public sector jobs.
· Some of the sectors posting increases last month were leisure and hospitality (+34,000), professional and business services (+12,000) and retail trade (+5,200).
· Besides the government, sectors posting losses included financial activities (-15,000) and construction (-9,000).
· Average hourly earnings fell from $19.42 in May to $19.41 in June, and hours worked per week was unchanged at 33.6.
· The unemployment rate ticked up a tenth of a point in June to 9.2 percent.
It’s a disappointing report, but it’s important to keep it in perspective:
· Factory orders, exports and business capital spending appear to be holding up; energy prices are coming down; supply chain disruptions related to the disasters in Japan are being smoothed out; and the Federal Reserve’s monetary policy remains highly accommodative – all of which suggest that growth should firm up going forward.
· The labor market is a lagging indicator. The softness in the past two months likely is somewhat of a delayed reaction to high energy prices earlier in the year.
The last recession was triggered by a financial crisis. Research by economists Kenneth Rogoff and Carmen Reinhart shows that such recessions are deeper, and the recoveries more protracted, than recessions brought on by other factors such as rising inflation and interest rates. The deleveraging process in the household and government sectors continues to weigh down the pace of improvement. Expect, the recovery to continue but at a less-than-satisfying pace.
Have a good weekend.
SVP, Chief Economist
Grubb & Ellis
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