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The Roller Coaster Ride Continues

July 11, 2011

A common joke in economic circles (yes, economists do occasionally have a sense of humor) is that economic forecasters are around just to make weather forecasters look good. Well, in our defense, here is a sample of what we have to work with.

Last Thursday we got this headline “Stocks advance on strong jobs report.” Friday’s headlines read “Stocks drop after weak jobs report.”

Two days, two different reports, two different directions for the stock market. So how can we have such divergent job reports released within 24 hours?
Let’s start with the “strong” jobs report. This is actually two separate reports. The first was the federal government’s weekly report on first-time unemployment benefits. This report showed that for the week ending July 2, fewer filings for unemployment insurance occurred than expected. This definitely qualifies as good news.

The second good news report that drove the market up on Thursday was a report from ADP, a private company that provides payroll services for businesses. This report found that employment in the private sector added 157,000 jobs in June, far exceeding expectations.

This set the stage for Friday’s unveiling of the official June jobs report. With the positive news released on Thursday, hope arose that the June employment numbers would show a solid rebound from May’s disappointing figures.

Instead the June figures were even more disappointing. The national economy added a paltry 18,000 jobs in June. Economists had expected growth of about 125,000. According to the June report, private employers only added 57,000 new jobs, while the public sector lost 39,000. This is a far cry from the 157,000 new private sector jobs ADP indicated we created in June.

The discrepancy between these reports is really not the story here, although it is a good example of how difficult it is to accurately measure our economy. The true story is, and continues to be, where are all the jobs?

This year had been fairly solid in job creation through April, but the back-to-back down months since then is a real concern. Jobs will lag the recovery, but by this point, we would expect to see some real employment growth.

This may be just a temporary employment lull caused by the earthquake in Japan and the political wrangling over the debt ceiling. On the other hand, it may instead be a new normal brought on by a combination of increased productivity and a private sector that is more concerned with paying down debt than spending. [Little known fact – the private sector, households and businesses, holds 63 percent of the nation’s nonfinancial sector debt, twice as much as government’s 31 percent.] Which of these two scenarios will ring most true remains to be seen.

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