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Jobs Report Surprises on the Downside

By: Francis Cianfrocca (Diary)  |  July 8th, 2011 at 09:39 AM  | 

RESIZE: AAA

Noted briefly: the BLS report on June employment conditions was sharply disappointing. Non-farm payrolls rose by only 18,000 jobs. This is far below the +200,000 jobs we were seeing monthly earlier this year. It undershot the expectations of private economists, some of whom were expecting at least +50,000. And it varies from the considerably more-optimistic ADP report issued earlier this week.

The June number has been widely anticipated because the May number was such a stinker. If these reports are accurate, it looks like the US economy suddenly slammed on the brakes and stopped creating many jobs, late this past spring. Many people believed that the May number was an outlier, and the June number would correct it on the upside.

Instead, the June report looks like a repeat of May. Nearly every sector is continuing trend. Mining, leisure/hospitality, and business services all created jobs, but not in excess of earlier trends. Manufacturing, which had been strong earlier in the year due to the auto industry, has stopped growing. All levels of government are losing jobs rapidly.

Market reaction was swift and negative. Note and bond prices had been quite strongly on the downside ahead of the report, which was released at 8:30 AM EDT. All week, sentiment in markets has been very strong, with many people starting to talk about a return to strong economic growth in the second half of the year.

This report pours cold water all over that story line. Notes and bonds immediately turned upward. The 10-year Treasury note was yielding 3.16% at 8:28 this morning. The yield plunged all the way to 3.06% just a few minutes afterward. Stock-markets had been indicating a mildly higher open, but immediately turned sharply downward. Clearly a lot of people were surprised by this report.

The bottom line, to me, is that the weak economic conditions of the second quarter will continue for some time longer. I’m not reading the report as a reason to panic. It’s not good news, by any means, but it’s not a disaster either.

Unless, of course, you’re a President of the United States who has been trying to convince people that you’re actually doing good things for the economy.

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  • banzaibob

    is still weak.

  • http://theminorityreportblog.com Repair_Man_Jack

    This is where our current trend is taking us. Honest feedback is gift from God. We can’t fix what we don’t know is plucked. DC will make a lot of noise about this. They feel like they have to. Filter it out.

  • Darin_H

    Not good, not good at all.

    • Francis Cianfrocca

      n/t

  • earlgrey

    18,000 will fit in abasketball stadium. All across the country that is how many jobs were added?

    Has there been a hiring freeze at the White House? I read somewhere that the number of government owned limos went up 73% from when Bush was President. This is beyond lame.

    • Francis Cianfrocca

      In fact, I’d say they differ significantly more often than not.

    • http://travismonitor.blogspot.com Freedoms Truth

      I have a theory that may and june are weak because the ‘seasonal adjustment’ was thrown off by the census stuff last year. We shall see.

    • carolina

      of job tracking info. They don’t have any info about govt jobs and larger firms that do their own payroll.
      Personally I think it is good news that the govt payrolls are shrinking and that smaller firms (ADP clients) are hiring.
      I consider this movement in the right direction. However, it is still weak (pitiful) job growth.
      The govt bureaucracy does not know about new small companies. They survey long established companies and then add a birth/death calculated number that is often so large that it overshadows the actual collected figures. I have very little confidence in the govt ‘calculated’ number. It is based on statistical data from the past.
      That said, I do love to see the BO admin ‘sweat’.

    • carolina

      of job tracking info. They don’t have any info about govt jobs and larger firms that do their own payroll.
      Personally I think it is good news that the govt payrolls are shrinking and that smaller firms (ADP clients) are hiring.
      I consider this movement in the right direction. However, it is still weak (pitiful) job growth.
      The govt bureaucracy does not know about new small companies. They survey long established companies and then add a birth/death calculated number that is often so large that it overshadows the actual collected figures. I have very little confidence in the govt ‘calculated’ number. It is based on statistical data from the past.
      That said, I do love to see the BO admin ‘sweat’.

  • Death_of_the_Donkey

    This may very well be still related to the tsunami fallout and the recent spike to $4/gallon gas. So long as gasoline doesn’t get back to $4 (and I know it is heading higher recently again), I still think we could have a decent second half (I personally am more in the 2.5% H2 growth, so not very optimistic myself).

    But I get back to the underlying causes of this stagnation, that the middle class has seen virtually no real income growth in 20 years and once the housing collapse took away their one source of funds (ie equity), there is nothing left to fuel our consumer economy.

    • Francis Cianfrocca

      The gas price may have something to do with it, although that effect should have started to abate when the gas price peaked in May.

      Here’s another possibility: the federal govt started a slowdown in spending in March (with the CR) and May (when we hit the debt ceiling). Since the fed govt is one-fourth of the economy, a slowing govt means a slowing economy.

      I’m still looking for additional data to confirm that theory.

      • Death_of_the_Donkey

        Government subtracted 1.2 from the GDP number in Q1 (ie had government simply been neutral we would have had 3.1% GDP growth in Q1). And we know the negative impact government has had on the hiring data recently. So I think you are correct on that,.

        My contention with the tsunami is that it essentially stopped cold the expansion we had been seeing in manufacturing.

        AS for the abating gas price, it has, but I am not sure how fast that will show up in these numbers. I thin we will need to see some stability in gas prices for a few months before we get any relief from the psychological impact the $4 prices had earlier (ie people don’t trust the prices to stay down and so hold back spending).

  • http://www.FranBaker.com frankieb

    I got my hair cut yesterday and the stylist said her business is way down – people are cutting out nonessential expenses. Last week I was in a nearly-empty Macy’s and the saleswoman said her store’s sales are really slow – again, people cutting out nonessentials.

    These people in D.C., from the WH down, are destroying our economy one or two segments at a time. In addition to seeing BOzo defeated, I hope Missouri will give Claire McCaskill the boot.

    • http://theminorityreportblog.com Repair_Man_Jack

      I’d ask if you went to the same barber I went to. This lady who does my John Edwards-like coif, runs a traditional Korean Barbershop and actually loves her job. She’s getting older, and going broke by staying up and running. Huntsville, Al will have considerably more bad hair days if the current economy sucks her under the tde.

  • manfred

    These numbers are always made to look better then adjusted to the downside later with little attention. This number looks like it might actually be correct for once and everyone in the media is talking about the revisions to the previous month. Then as soon as the numbers come out Obama announces he is going to speak about the latest numbers.

    I think this was planned and I guarantee he will say this is because the Republicans refuse to tax the greedy 250k dollar a year corporate jet owners and raise the debt ceiling.

  • dblagent007

    Take a look at the chart found here: http://macromarketmusings.blogspot.com/2011/07/colin-barr-awhile-back-had-article.html

    We need a Swedish style rapid recovery, but that means printing more money and too many on the right oppose that. Actually, the Federal Reserve could stop paying interests on excess bank reserves and start charging interest. That also increases the money supply (just like printing money) but, for reasons that I don’t understand, is much more palatable to mainstream conservatives.

    • Francis Cianfrocca

      Although they asked Congress for (and received) the authority to do so, should it ever be necessary to counteract inflation.

      Charging interest on reserves would be instantly deflationary, not to mention that it would probably trigger a solvency crisis in the banking industry. You may find this prediction to be counterintuitive, but the fact is that banks aren’t in any hurry to increase lending.

      • dblagent007

        Francis, they currently pay 0.25% interest. http://www.federalreserve.gov/monetarypolicy/reqresbalances.htm

        The Fed started doing this in late 2008 and it was one of its biggest mistakes. In effect, the Fed tightened the money supply at a time when the Fed needed to loosen the money supply (for those who may not understand why the Fed’s policy contracts the money supply, basically the banks are being rewarded with interest payments for not lending money, i.e, keeping money out of circulation). Contrast that with Sweden’s Central Bank, which charged interest on excess reserves (that will get banks to open up the coffers). Sweden’s recovery is robust and ours stinks.

  • plwinteregg

    As a small business owner, I’ve been amazed at how inept so many pundits have been over so-called conflicting numbers. Employment is simultaneously up or down, sales are simultaneously up or down, or corporations are sitting both on cash and debt-poor.

    What has been developing for years has really come to head over the last few. We have two economies, one is of the large corporations that are in bed with politicians and who are willing to do each other favors, the other is the rest of us poor schmucks, the small to medium entrepreneurs who get no favors and instead suffer the full brunt of government tax rates and regulations.

    When the collapse of 2008 happened, it was the crony capitalists who got caught, so the government of course swept in because these companies were ‘too big to fail’. For the last few years, DC has done its best to break the back of business—except of course for their crony friends, the TBTF crowd.

    This is why all of the mixed reports and difficulty the pundits have had in economic forecasts. The numbers don’t make sense because they continue to lump them all together. If you separate them out into the two existing economies, they begin to make sense. For instance, on one hand corporations supposedly are sitting on huge stockpiles of cash (predominately the large and/or crony folks), but businesses have record debt (predominately the small/medium guys). Exceptions exist, certainly, but I think you can begin to get the point.

    What is happening now is the long-term effects of not just abandoning but actually punishing the small guys is finally ‘coming home to roost’. This has created such a huge drag on the overall economy that all of the beltway favors doled out to their crony friends can no longer overcome it.

  • ghostship

    The number of only 18,000 jobs created will most likely get worse when it is revised downward in a few months just like it seems every other jobs claim is revised down with little fanfare after a few months.

    • Death_of_the_Donkey

      Almost all of the jobs reports for the past year have been revised up significantly with the exception of the last 3.

  • earlgrey

    i thought it was funny.

  • snowshooze

    Says it all.