MacroScope

Soft underbelly to firmer July jobs report

After a string of very weak figures in the second quarter, the July employment figures prompted a collective sigh of relief that the U.S. economy was at least not sinking into recession. That doesn’t mean the news was particularly comforting. U.S. employers created a net 163,000 new jobs last month, far above the Reuters poll consensus of 100,000. Still, the jobless rate rose to 8.3 percent.

Steve Blitz of ITG Investment Research explains why the underlying components of the payrolls survey offered little cause for enthusiasm:

The headline is good but the details do nothing to dissuade the notion that economic activity remains soft. There is, in effect, no sign in the details economic activity has accelerated from June’s pace when a downward revised 73,000 private sector jobs were added. Hours worked remain the same and overtime at manufacturing firms fell. The diffusion index (percentage of firms adding workers plus one-half of the percentage with unchanged payrolls) dropped in July to 56.4 from 56.8 in June, 61.3 in May, and 62.2 in July of last year. The civilian labor force dropped by 150,000 and the broad U-6 measure of unemployment rose to 15.0% — reversing all the gains made in 2012.

Given this backdrop and looking at the jobs gains in various categories it is difficult to see how similar upticks are likely to be repeated in August. […]

In sum, if one wants to take from this report the notion that the economy isn’t heading into a contraction or something worse, that’s fine. One would, however, be on less solid ground believing this report signaled a turn in the economy from its low level stasis of 2% real growth.

Weak manufacturing orders tend to precede U.S. recessions

U.S. manufacturing activity shrank for a second straight month in July as recent economic weakness spilled into the third quarter, according to the Institute for Supply Management’s closely watched index. But that wasn’t the worst of it: new orders, a gauge of future business activity, also shrank for a second month, albeit at a slightly slower pace.

Tom Porcelli at RBC explains why the status quo may not be good enough to keep the economy expanding:

The historical record back to 1955 suggests a rather ominous outcome when ISM new orders remain at 48 or less for two straight months. In fully 75% of those instances we were hurtling toward recession. The recent headfakes occurred in 1995 during the mid-cycle slowdown and in 2003 shortly after the recession ended and when the housing boom was in its infancy. Our call remains that we’ll (barely) skirt a recession but with evidence mounting that the economic headwinds are placing significant downward pressure on economic output, we find it striking that forecasters – as bearish as we’ve been told they are – still expect growth to average 2.2% in the second half of the year.

Hints of recession in sleepy Richmond Fed data

It’s a report that gets little attention normally (We at Reuters geek out on Fed data a lot, and even we don’t write a story about it). But an unusually sharp contraction in the Richmond Fed’s services sector index for July caught the eye of some economists. The measure took a nosedive, falling to -11 this month, the lowest in over two years, from +11 in June.

Tom Porcelli at RBC says the plunge in new orders was downright scary:

Richmond Fed manufacturing got absolutely walloped in July. In fact, the all-important new orders component sank to an abysmal -25 from -7 in June and -1 two months ago. This is by far the weakest print since the recession. In fact, at no point has this metric been this low when we have not been in a recession.

To be sure, the data capture only two cycles prior to this one, but this doesn’t take away from the fact that the recent print is suggesting things could be much worse than advertised. We continue to hear how this year is “2011 all over again”, yet the data suggest it is materially worse.

Off the rails? Goldman lowers Q2 GDP ‘tracking’ estimate to 1.1 pct

Another round of bad news on the economy has prompted Goldman Sachs to shave another tenth of a percentage point off their already bleak second quarter U.S. GDP forecast.

The July Philadelphia Fed business activity index improved less than expected and remained “significantly negative,” pointing to a third month of contraction. Following news that June existing home sales were much weaker than forecast, Goldman Sachs economists lowered their Q2 GDP tracking estimate to 1.1 percent from 1.2 percent.

The 5.4 percent month-on-month decline in existing home sales in June, reported by the National Association of Realtors, was much weaker than the consensus expectation, the economists noted. The 4.37 million annualized rate of sales was also lower than expected despite upward revisions to the May sales figures.

BoEasing

The Bank of England is finally catching a break. With Britain’s economy officially in recession, the BoE had been constrained from further monetary easing by a stubbornly high inflation rate. But as the global economy stumbles and Europe’s crisis rages unabated, UK price pressures may be giving way.

Barclays economist Chris Crowe argues:

We expect the MPC to announce an additional £50bn in QE at the July policy meeting.

CPI inflation fell to 2.8% y/y in May (Barclays 3.1%, consensus 3.0%) from 3.0% in April. Meanwhile, RPI inflation declined to 3.1% y/y (Barclays and consensus 3.3%), from 3.5%. With near-term inflationary pressures easing, the case for additional QE in response to faltering confidence is stronger.

“There are human beings involved” in austerity debate

The inventors of democracy and its greatest 18th century champions both go to the polls this weekend. Greek and French voters will try to elect governments they hope will help release their economies from the grips of the euro zone debt crisis.

While exercising their democratic vote, Europeans will also be contemplating another key issue: their basic economic survival.

That is why the debate about austerity versus growth has become so important.

Financial markets see fiscal discipline as crucial to get the euro zone’s debt burden back to sustainable levels. They are going into the Greek elections favoring triple-A rated bonds over peripheral counterparts.

Europe in recession – an interactive map

Spain has become the latest European country to slip into recession joining the Belgium, Cyprus, The Czech Republic, Denmark, Greece, Italy, The Netherlands, Ireland, Portugal, Slovenia and the United Kingdom.

Click here to view an interactive map.

*Updated to include Romania and Bulgaria

 

More Americans find aging is a gateway to poverty

Over the last several years, more Americans have found that aging has left them in the clutch of poverty. Between 2005 and 2009, the rate of poverty among American seniors rose as they aged, as did the number of people entering poverty, according to a new report from the nonpartisan Employee Benefit Research Institute (EBRI).

Poverty rates fell in the first half of the last decade for almost all age groups of older Americans (defined as age 50 or older) but increased since 2005 for every age group. Says Sudipto Banerjee, EBRI research associate and author of the report:

As people age, personal savings and pension account balances are depleted, and as people age, their medical expenditures tend to increase.

UK recession in charts

Britain’s economy slid into its second recession since the financial crisis after official data unexpectedly showed a fall in output in the first three months of 2012:

Starting real GDP at 100 in 2003 for the UK, U.S. and euro zone shows UK GDP flat since mid-2010 and well below the 2007 peak.

Survey data had been suggesting a stronger GDP number and perhaps points to upwards revisions to come.

Gimme a P, gimme an M, gimme an I

If you have ever wondered why financial markets and economists are interested in purchasing managers indexes, here is why: