Tags: job | recovery | economy | consumers

Consumers, Economy, Job Gains to Falter Without More Govt Aid

Consumers, Economy, Job Gains to Falter Without More Govt Aid

By Friday, 07 August 2020 11:14 AM Current | Bio | Archive

INDICATOR: July Employment Report

KEY DATA: Payrolls: +1.76 million; Private: +1.46 million; Restaurants: +502,000; Local Education: +215,000/Unemployment Rate: 10.2% (-0.9 percentage point); Hourly Wages: +0.2%

IN A NUTSHELL: “Job gains were strong but are slowing, and given that the reopening is faltering, we could see future payroll increases soften significantly.”

WHAT IT MEANS: For much of July, the economy was on a path to reopen and the employment report shows the impact of that process. Payrolls surged, though they were less than half of the June increase.

The details, though, raise some questions about the future, especially with the rise in virus cases slowing things down sharply. For example, restaurants, clothing stores and personal services/laundries accounted for over fifty percent of the total private sector increase. That is not likely to be duplicated given what is happening across the country. In contrast, manufacturing and construction increases were pretty much in line with what we would see in a moderate growth environment, not a robust recovery. And we have begun to see some negative signs sprinkled in with the growth numbers, an indication that the fundamentals are starting to drive hiring, not just the reopenings.

As for the unemployment rate, it continues to decline significantly and that is good news. The undercount is declining and BLS estimated it was a maximum of one percentage point. That said, it remains above the peak set during the Great Recession, so we have something to applaud but not to be happy about.

On the wage side, hourly earnings rose modestly, but with hours worked down, weekly earnings fell. That is something to be watched carefully, especially with the $600 per week unemployment add-on having expired.

IMPLICATIONS: On its face, the July employment report was pretty good. Payrolls rose strongly and the unemployment rate came down sharply. But June/July could be the high point for the improvement in the economy. The reopenings are slowing as the virus rages across the nation. Governments at all levels added 300,000 workers and given the financial pressures they are under, that could turn from plus to minus in a heartbeat. The other key sectors adding jobs, retail and food services, are not doing so now as states are limiting activities again.

The July ADP private sector jobs report, which came out on Wednesday, signaled a likely major slowdown in hiring. (I had no power for 2.5 days, so I could not write that number up.) It may have been one month ahead of its time. And most importantly, Congress and the president are doing their best to crater consumer spending. As I have noted several times before, the personal income gains can be ascribed to the government support programs for households and businesses.

The $600 per week unemployment compensation add-on has been the key addition and not everyone in Congress or the White House want to retain it. And, not surprisingly, the fiscal conservatives, who were more than willing to blow the budget before, are now trying to convince their voters that they have rediscovered their religion and want to limit the addition to the deficit.

The result is lots of posturing but not much legislating and the longer this goes on, the less money that will flow to households (that starts this week) and the less they will spend. That is not good for the recovery.

We are still going to get a huge third quarter growth rate. That is just the math of going from a shutdown economy to a reopening economy. But the ability to sustain that strong growth is fading. Firms are laying off workers at a huge pace, bankruptcies are starting to accelerate as the federal funding that has kept many firms afloat is running out and the virus is keeping a lid on firms reopening.

Without additional significant government support, consumer spending, economic growth and job gains could all falter. The economy is clearly not ready to stand on its own.

Of course, investors don’t think any of that will happen, so the happy days continue unabated. Tinker Bell has spread her magic pixie dust across the markets and investors continue Believing!

Joel L. Naroff is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm.

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Job gains were strong but are slowing, and given that the reopening is faltering, we could see future payroll increases soften significantly.
job, recovery, economy, consumers
Friday, 07 August 2020 11:14 AM
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