A week worth forgetting—-if possible

Every week the U.S. gov­ern­ment releases a flurry of reports that are sup­posed to pro­vide a snap­shot of eco­nomic activ­ity, with a sim­i­lar series of data releases being pro­vided by other gov­ern­ments. It is hoped that all of this infor­ma­tion will pro­vide ana­lysts some clue as to where the econ­omy is headed. Some­times these releases are decid­edly opti­mistic, some­times quite the oppo­site, and often times the var­i­ous reports seem con­tra­dic­tory in nature. Data pro­vided by the U.S. and Euro­pean gov­ern­ments over the past week or so have been largely depress­ing, with a few glim­mers of hope.

For exam­ple, the U.S. Depart­ment of Com­merce reported the econ­omy grew a lit­tle less dur­ing the sec­ond quar­ter than orig­i­nally thought. Dur­ing the April through June time frame, the econ­omy expanded at an ane­mic rate of just 1 per­cent. To put that num­ber into some per­spec­tive, the U.S. econ­omy has a long term growth path of about 3 per­cent, so the sec­ond quar­ter was extremely weak and sug­gests growth that is barely above a recession-like level. And in terms of what it means to peo­ples’ liveli­hoods, such pathetic growth pro­vides an envi­ron­ment that “feels” like a reces­sion even though it does not meet the tech­ni­cal def­i­n­i­tion, as pro­vided by the National Bureau of Eco­nomic Research.

And as if to demon­strate pre­cisely this point, the most dam­ag­ing data release of last week, the monthly report on employ­ment and unem­ploy­ment, was absolutely repul­sive. Dur­ing August the U.S. econ­omy gen­er­ated a net job change of zero. The few pri­vate sec­tor jobs that were gen­er­ated (17,000) were pre­cisely off­set by a drop in gov­ern­ment employ­ment lev­els. As well, the length of the aver­age work­week fell dur­ing the month, strongly sug­gest­ing that out­put lev­els dropped dur­ing the month.

Dur­ing the lat­est reported month the unem­ploy­ment rate remained steady at 9.1 per­cent. This may seems like not-bad (as opposed to good) news, but a more com­pre­hen­sive mea­sure of unem­ploy­ment, that includes dis­cour­aged work­ers and those forced to work part-time even as they want to be full time, rose from 16.1 per­cent in July to 16.2 per­cent. While this rise may not be “sta­tis­ti­cally sig­nif­i­cant,” it does strongly sug­gest that lit­tle hope for imme­di­ate improve­ment is in the cards for Amer­i­cans want­ing jobs. So sig­nif­i­cant is this jobs issue for the coun­try that the Obama admin­is­tra­tion announced last week they are going to hold off on enforc­ing new EPA restric­tions on ozone emis­sion rules that may lead to job losses, par­tic­u­larly in the energy sector.

Reports com­ing from Europe also pro­vided scant hope for a bet­ter tomor­row. Accord­ing to two recent sur­veys, busi­ness and con­sumer con­fi­dence lev­els through­out the Euro­pean Union are plung­ing; sug­gest­ing that future E.U. eco­nomic growth will be under down­ward pres­sure. And America’s clos­est neigh­bor, Canada, reported that their GDP fell at an annu­al­ized rate of 0.4 per­cent in the sec­ond quarter.

Why bring up all of these issues regard­ing the economies of other coun­tries? Because one of the strengths of the U.S. econ­omy over the past cou­ple of years has been the export sec­tor, with U.S. man­u­fac­tur­ers send­ing more prod­ucts over­seas than has been expe­ri­enced for many years. And with improved “net export” activ­ity, Amer­i­can jobs have been gen­er­ated and allowed a par­tial off­set to the weak­ness in other areas. Sadly, as other nations see their economies sput­ter, U.S. exports will suf­fer and the recent strength of man­u­fac­tur­ing activ­ity may sub­side. A report released last week sug­gests world­wide indus­trial activ­ity is begin­ning to weaken noticeably.

While all of the reports cited thus far are decid­edly neg­a­tive, there were releases that could pro­vide a bit of good news mov­ing into the future. Accord­ing to two dif­fer­ent indi­ca­tors, the U.S. con­sumer is not totally dead in the water. The Com­merce Depart­ment reported that con­sumer spend­ing rose by a size­able 0.8 per­cent in July, while per­sonal incomes advanced a smaller 0.3 per­cent. How did peo­ple pull this off? By reduc­ing their sav­ings rate from 5.5 per­cent in June to 5.0 per­cent in July. What’s more, the nation’s major retail­ers reported that August sales were up 4.4 per­cent com­pared to last year despite the hit from Hur­ri­cane Irene late in the month.

Such con­sumer spend­ing fig­ures may indi­cate the econ­omy expanded bet­ter in the third quar­ter than in the sec­ond, though any long-term con­sumer gains are going to be heav­ily depen­dent upon new job cre­ation. And that’s why the U.S. eco­nomic out­look remains extremely murky.

Dr. James New­ton serves as Chief Eco­nomic Advi­sor to Com­merce National Bank and is an aux­il­iary fac­ulty mem­ber in eco­nom­ics and sta­tis­tics at OSU-Marion and OSU-Newark. Dr. Newton’s views do not nec­es­sar­ily reflect those of Com­merce National Bank or OSU-Marion/Newark.

Posted by Jim Newton on Sep 6 2011. You can follow any responses to this entry through the RSS Feed. Comments can be made below.