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.