High unemployment still providing ‘headwinds’ for the economy by Ken Mahoney
After stocks surged nicely in July, thanks to better-than-expected corporate earnings, investors are being more cautious in August. As the second-quarter earnings reporting period draws to a close, focus is shifting back to disappointing job numbers and weak consumer spending.
Friday’s jobs report brought weaker-than-expected results, with private sector payrolls rising by an estimated 71,000 in July, thus falling short of the 100,000 expected. The national unemployment rate remained unchanged at 9.5% as job gains were much too moderate to lower it. According to MarketWatch, economists estimate that it would take sustained job growth at a rate of around 150,000 per month to begin lowering the jobless rate. Responding to the news, the Dow dropped 160 points in morning trading as investors flocked to Treasurys, pushing the yield on the 10-year note to its lowest level in 12 months. Later defying logic, the blue-chip index staged a dramatic comeback in the afternoon, eventually closing with a 1.8% gain for the week.
Also affecting the week’s performance was a decline in consumer credit and an increase in the rate at which Americans are saving. Outstanding consumer credit fell 0.7% in June, while the national savings rate rose to 6.4% from 6.3% in May, the Federal Reserve said in a report released Friday.
Why are spending and jobs numbers so heavily weighted when it comes to evaluating the health of the recovery? Because businesses are generally reluctant to hire more workers until they see evidence that consumers are spending money, and consumers generally won’t spend more money until they have a job and feel comfortable that they are secure in that job. This tug of war between economic indicators is contributing to the “uncertainty” we keep hearing about. What will give way first? In his speech this past week, Fed Chairman Ben Bernanke predicted that consumers and businesses will increase spending to give the economy a shot in the arm. We hope he’s right.
Key things to watch this week:
Tuesday – Productivity and Costs, FOMC Meeting Announcement
Wednesday –International Trade, Treasury Budget
Thursday – Jobless Claims
Friday – Consumer Price Index, Retail Sales, Consumer Sentiment, Business Inventories
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HEADLINES:
The gusher has finally been beaten, and from 400 miles up, government satellites assure that the oil in the Gulf of Mexico is disappearing. But with BP cautiously declaring its "static kill" a success in plugging the once-runaway well, and the Obama administration's claims that crews and nature have taken care of all but a quarter of the estimated 207 million gallons of crude that have poured from the blowout, many Gulf coast residents are afraid the nation will avert its gaze from the cleanup effort.
On Saturday, Cuba's Fidel Castro participated in his first government function since he nearly died in 2006. During his 90-minute appearance before a full session of Cuba's legislature, he hammered away at an apocalyptic forecast of nuclear war and urged President Obama to avert it.
Ford Motor Co. will pay its Executive Chairman William Clay Ford for the first time in five years as the company has swung to profitability for more than a year, according to media reports.
Americans cut credit-card use for a 21st straight month in June as sluggish job growth and a slowing economy turned spenders into savers, putting more pressure on the recovery.
Mark V. Hurd, C.E.O of Hewlett-Packard, has been ousted from his post for fudging his expenses. The board charged that Hurd, 53, failed to disclose his use of company funds. It urged Hurd to resign, but he balked and offered to compensate the company for the disputed funds, said to range from $1,000 to $20,000. The board, however, insisted. Mr. Hurd is leaving with $12,224,693 in severance, according to a company filing with the Securities and Exchange Commission on Friday.
QUOTE OF THE WEEK:
“The road to recovery doesn't follow a straight line.” – President Obama, August 6, 2010
