Labor Report

Regarding the labor report which printed earlier on Friday, I think that the best one can say is that it was not as bad as some had feared. Once again businesses shed workers but at a restrained pace. The unemployment rate climbed to a cycle high of 5.7 percent butt that reflects a slight increase in the participation rate.

Most industry segments lost workers and the relative bright spots remain government, leisure and hospitality and education.The index of aggregate hours work fell 0.4 percent and the index of manufacturing hours work dropped 0.1. That presages a drop in Industrial Production.

Average hourly earnings rose 0.3 percent and year over year have risen by 3.4 percent. I published a piece the other day which demonstrated that the trend on the year over year change is down and is about 1 percent lower than it was last year. Consequently, there is no evidence of a wage price spital which might cause dyspepsia for FOMC members in the days in advance of the FOMC meeting Tuesday.

I think the proper conclusion is that the economy remains in a very soft patch and it will have difficulty gaining traction.

Consumption in the current quarter will be challenged by the lack of fiscal stimulus which has about run its course.

Exports were a big driver of the economy in Q2 but one has to question whether that can be sustained at a similar pace as the economies in the countries for which many of those exports are destined have turned soft, too.

And since consumer spending accounts so much of GDP growth it is hard to envision strength there as the job market remains soft as manifested by the seventh consecutive month of job losses.

It is a simple equation. Businesses hire workers and pay them income. The workers spend the income which begets profits and new investments and new hiring. That cycle has been broken and is in need of repair. Until the cycle is restored the economy will be caught in the grip of restrained growth.

Originally published at Across the Curve and reproduced here with the author’s permission.