Economic data came out in droves in the last two weeks, with the Bureau of Labor Statistics putting out jobs numbers last Friday, the Bureau of Economic Analysis releasing their 2nd Quarter initial estimate on July 29th, and the Federal Reserve issuing a news release on July 27th, so we’ll handle things back to front.
Highlights from the July Jobs Report
- Net nonfarm payroll rose by 255,000 in July.
- the U-3 unemployment was unchanged at 4.9 percent in July.
- the U-6 unemployment rose to 10.1 percent in July, and worsening of 0.2 points.
- labor force participation rate, at 62.8 percent, changed little in July.
- employment-population ratio, at 59.7 percent, changed little in July.
The number for July was a solid 255,000 jobs, but the U-6 number worsened, and there was no change in the LFPR or EPR, which remain at historic lows despite stimulative rates and Quantitative Easing policy from the Federal Reserve. Historically speaking, the average July number was above the average for July, but much of the hiring in July is hold over hiring from May, which was revised upward from +11,000 to +24,000, about 180,000 jobs shy of the average performance of May. The three month average for the last three months was only 190,000, short of the 200,000 average.
Highlights from the 2nd Quarter Economic Report
- 2nd Quarter GDP grew at an annual rate of 1.2 percent.
- 1st Quarter GDP grew at 0.8 percent (revised).
- 1st Quarter GDP revised 0.3-percentage point downward.
The biggest news is that the 1st Quarter GDP was revised downward, dropping below a 1.0% growth for the first three months of the year. The 2nd Quarter GDP growth was not robust, either, coming in well below half of 2nd Quarter GDP of 2015, which was 2.6% annualized growth. The economy hasn’t had a 2.0% quarterly growth rate since 3rd Quarter 2015, and hasn’t had a quarter growth rate above 3.0% since 3rd Quarter 2014. All indications continue to point toward a recession beginning in this Q3 or Q4 of 2016.
Highlights from the Federal Reserve
- Inflation is below the Committee’s 2 percent longer-run objective.
- The Committee currently expects economic activity will expand at a moderate pace and labor market indicators will strengthen.
The Federal Reserve has no plans to change any policy, either their federal funds rate presently between 0.25% and 0.5% or the Quantitative Easing policy, creating free funds, which will continue to keep the stock market afloat. This indicates that the economy still is so weak that it is in no danger of generating inflationary pressure outside of stocks and bonds, where stock prices remain inflated, but additional money continues to flow from the Reserve Banks, so there will be no slow down there.
European markets have stabilized after the contentious #Brexit vote, proving that much of the fears of long term economic fallout from Britain leaving the European Union was overblown. This may remove political and economic barriers to future exits from the EU, though there does not appear to be as much political support in any other EU countries for such a move.
The primary drivers for 3rd Quarter or 4th Quarter economic downturn in the United States remain driven by domestic policies. These economic headwinds can only help the Republicans in 2016, but so much political damage has been done to the Republican brand, that even with every political advantage from almost continuous unfavorable news about the Democratic candidate, any opportunity for a change in political leadership in the White House seems extremely unlikely.
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