Anticipating the August Jobs Report
The economic recovery will get an important grade on Friday with the release of the August jobs report. In the aftermath of last week’s downward revision to 2nd quarter GDP growth (to 1.6 percent) and weak housing sales data, fears of a double-dip recession have risen. Not so fast:
Looking past special, temporary factors economic growth is not decelerating.
- The first part of 2010 was dominated by temporary factors: a large inventory swing, Census hiring/firing, house purchase tax credits, cash-for-clunkers, etc.
- The factors gave the illusion of faster growth early in the year. Stripping them out suggests a core growth rate of roughly 1.5 to 2.0 percent.
Recent data are consistent with sustained, but sluggish growth.
- The worst of housing market declines is behind us. The Case-Shiller housing price index released today showed that only one market – Las Vegas – is still experiencing housing price declines. Housing permits, starts and sales will displays considerable volatility, but broadly the housing market is at a bottom and will become less of a drag on growth.
- Consumer confidence rose in August due to greater confidence in the near-term outlook. Consumers were modestly less optimistic about current conditions.
- Personal income and outlays showed relatively solid income growth, a 6 percent saving rate, and modest consumption growth. Consumers will not power this recovery, but spending is not falling and pointing toward a double dip.
- The Chicago Purchasing Managers Index for August was 56.7, weaker than July but still showing expansion.
The greatest risk of a double-dip comes from policy errors.
- Keynesian stimulus has not and will not work when households have large debts, less-valuable homes, and diminished portfolios and governments are in terrible fiscal shape. The emphasis should be on pro-investment, pro-innovation, pro-competitive growth policies.
- Tax increases in 2011 are the single biggest threat to the recovery.
The bottom line: Barring a shift to genuine pro-growth economic policies, the economy will continue to grind along at 1 to 2 percent growth, with weak employment growth and sustained high unemployment. Expect more of the same Friday – 75,000 to 100,000 private jobs and unemployment unchanged. The recession is over, but it will be hard to tell.