Friday, August 5, 2011
Today’s better than expected jobs report is reassuring enough to help reverse the extreme negative sentiment that was behind the sharp market sell off on Thursday. What does it reassure us of? It shows that we are not heading in the direction of another recession.
On the other hand, it is further confirmation that the U.S. economy is maintaining its recent sub-par growth pace into the back half of the year. So, while fears of a recession may be exaggerated, there is no evidence at this stage of a second-half recovery either. We should continue to see market volatility as consensus expectations for the second half growth get readjusted.
The Bureau of Labor Statistics reported the creation of 117 thousand jobs in July, above the consensus expectation of about 75 thousand. Private sector jobs totaled 154 thousand, up sharply from 80 thousand in June. The prior month’s numbers were revised up, with June’s gains going up to 46 thousand from the originally reported 18 thousand level. The number of private sector jobs in June was revised up to 80 thousand from 57 thousand. The May numbers were also revised upwards.
The unemployment rate came down to to 9.1% from 9.2% in June. Average hourly earnings increased 0.4% in July, compared to unchanged in June. Average work week remained unchanged at 34.3 hours.
In the run-up to today’s jobs report, we got an unusual confluence of soft economic readings over the past week. We found a week ago that not only did the economy do worse than expected in the second quarter, but the growth numbers for the preceding quarters were also sharply revised downwards. This showed that the economy entered the second half with a lot less momentum than was previously understood.
The subsequent weak ISM reports raised serious doubts over the second-half recovery narrative that taken hold in the market. It is the negative reassessment of the second-half growth outlook, coupled with the expansion of Europe’s sovereign debt fears to Italy and Spain, that has been causing all the market turmoil.
But today’s report should help trigger a relief rally. The U.S. economy may not be growing fast enough, but it is not heading towards a recession either. And that is good enough in these otherwise grim times.
Sheraz Mian
Director of Research
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