Economy Watch: Latest U.S. economic data puncture hopes of steady recovery
Sunday, July 4, 2010
Let's say you've got three choices for how the economy's going to fare in the second half of 2010 and into 2011. They are:
A) A double-dip recession.
B) A slowdown in the ongoing recovery.
C) A sustained recovery.
If you want to turn a blind eye to the raft of economic data that came out last week, then by all means, pick Option C. But if you've paid attention and tried to digest the data on housing, unemployment, consumer behavior, stock market activity and overseas turmoil, you'd have to lean toward Option B. And an increasing number of people are starting to warily eyeball Option A.
Let's recap what we learned about the U.S. and global economy over the past week and try to figure out where we stand, now that we're halfway through 2010, as we prepare once again to celebrate our independence from a nation that has deficit problems of its own, but was at least wise enough to stiff-arm the euro:
-- On Friday, we learned that the U.S. unemployment rate for June dropped to 9.5 percent from 9.7 percent in May -- but don't fixate on that. Also, 125,000 jobs were lost in June, but don't concentrate on that, either. The reason: About 225,000 temporary census jobs were eradicated last month. Until the decennial count ends in the fall, the hiring and firing of temporary census workers will be the biggest influence on the nation's employment, like a big jobs accordion. Here's the Friday number you need to focus on: 83,000. That's the figure for jobs created last month in the private sector, i.e., not created by government money. It's true, that figure is up from May, but it's below what forecasters expected. More important, it's below the number of private-sector jobs that need to be created each month -- 125,000 -- just to keep up with population growth. The Great Recession probably ended a year ago, but private-sector employers, still worried about the near future, largely refuse to hire.
-- Thursday brought this stunner: Sales of existing homes in May dropped 30 percent from April, more than twice what everyone expected. Reason? Remember that $6,500 to $8,000 home-buyer tax credit that the government was handing out? It expired April 30. The message is clear: The tepid housing recovery we've seen over the past year was supported by government hand-outs, not market demand.
-- On Wednesday, stocks ended their worst quarter in more than a year. For the second three months of 2010, the Dow Jones industrial average was down 10 percent, and the broader S&P 500 and tech-heavy Nasdaq were each down a stunning 12 percent. By week's end, it only got worse. It is now clear that the stock rally, which began at the March 2009 bottom, ended in late April of this year as investors leave the market for the relative security of U.S. Treasury bonds and other safe harbors.
-- On Tuesday, we learned that consumer confidence in May fell off the table, dropping nearly 20 percent compared with April. This is not surprising, given the turbulent stock market and high unemployment rate.
-- On Monday, consumers telegraphed their lack of confidence in spending numbers released by the government. Consumer spending in the U.S. remains weak: It is increasing at half the rate it did in the months following the recession of the early 1980s, the second-worst downturn of modern times.
What does all of this tell us?