Good News Comes in Threes
First, let’s get the bad news out of the way. The labor market was stagnant in August, surprising analysts who expected a gain of 60,000 to 80,000 net new jobs. The private sector added a seasonally adjusted total of 17,000, which was offset by the loss of 17,000 government jobs. The bright spots were education and health services, up 34,000, and professional and business services, up 28,000. The information sector shed 48,000, of which 45,000 were striking Verizon workers who have returned to work since the survey – a bit of a silver lining. Other details of the report were disappointing including slight declines in the workweek and average hourly earnings as well as downward revisions totaling 58,000 in the June and July payroll numbers due to additional government job cuts. The unemployment rate was unchanged at 9.1 percent. Now, on to the GOOD NEWS!
Consumer spending spiked 0.8 percent in July, the strongest gain since February. Subtracting inflation, real consumer spending rose 0.5 percent, the best performance since December 2009. These numbers were inflated by the return of vehicles to dealer showrooms after supply chain disruptions from the disasters in Japan. Nevertheless, consumers are still in the game despite low confidence, anemic hiring and the never-ending housing slump. This is critical to the economy since consumer spending accounts for 70 percent of GDP.
2. The yield curve is not signaling a recession, meaning that the spreads between the yields on short- and long-term Treasury securities are high by historic standards. Typically a flattening or negative yield curve presages a recession; long-term inflation expectations recede, pulling long-term interest rates down with them. The difference between 2 and 30-year yields was 3.32 percentage points yesterday versus 2.27 points in the recession year of 2008.
3. It’s a three-day weekend! Have a good one.
SVP, Chief Economist
Grubb & Ellis
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