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If Jobs are Flourishing and Equities Soaring Why is the Consumer Not Convinced?

Posted by Joseph Trevisani on Jul 3, 2014 11:22:00 AM

The highly anticipated June employment report delivered a strong dose of optimism on the economy driving equities to record levels and firmly placing the first quarter GDP decline in the rear view mirror.

Non-farm payrolls added 288,000 positions, the household survey recorded 407,000 new jobs and the unemployment rate fell 0.2 percent to 6.1 percent, its lowest since September 2008, according to the Labor Department today. The median forecast was for a gain of 215,000 jobs.

The dollar gained 30 points against the euro within seconds of the 8:30 am release and reached 1.3596, its best level since June 26th, before retreating to 1.3610. The Dow soared 75 points within minutes of the open breeching 17,000 for the first time. The S&P 500 grabbed its own historical record at 1985, and the NASDAQ touched 4485 the highest on 14 years, since culminating months of the tech bubble in March and April 2000.

This is the fifth straight month of plus 200,000 gains in the labor market, the best string of employment reports since late 1999 and early 2000.

Revisions to March and April added another 29,000 jobs to the overall total. Private payrolls jumped by 262,000 in May and April's figure was adjusted 8,000 higher to 224,000. Manufacturing employment rose by 16,000 following April's upwardly adjusted 11,000 gain.  The so-called underemployment or U-6 rate fell 0.1 percent to 12.1 percent. This rate which includes people working part time who want full time employment and all those who have looked for work within the past year is now its lowest since October 2008, the month of the financial crash.

Yet not everything in the employment situation report was expansive Weekly hours and the labor force participation rate were unchanged and wages barely edged higher.

Average weekly hours remained at 34.5 where it has been for four months.  The number of average weekly hours for all private employees has not varied more than 0.3 in almost four years, from a high of 34.5 to a low of 34.2 in July 2010. In a strongly expanding economy employers should be adding hours to existing workers in addition to hiring new employees.

Wages are stagnant as well. Average hourly earnings rose 0.2 percent in May as expected, after the same gain in April. Yearly earnings were up 2.0 percent, down 0.1 percent from May's gain. Since January 2010 annual wage increases have averaged 2.0 percent, the same as inflation. Over the past four and a half years the average American has seen no financial improvement from their employment. 

The labor force participation rate was also unchanged in May at 62.8 percent, the modern era low

Taken together these statistics go a long way to explaining why many Americans still think the US is in recession and why the economy  continues to exhibit such weak economic growth that a harsh but hardly unprecedented winter can throw it into its steepest  quarterly contraction in five years. 

Despite five years of fitful economy recovery Americans as a whole are no better off economically than there were at the end of the recession in June 2009. Disposable income has not increased; wages have barely kept pace with inflation and compensation is still constrained by the large backlog of unemployed and underemployed workers.

The statistics for retail sales and real final sales reflect the ambivalent nature of the recovery. Real final sales measures GDP without inventory and is a more accurate record of actual consumption in the economy that overall GDP.

The retail sales 'control group', the Census Bureau category which mimics the consumption component of GDP has averaged a 0.31 percent monthly increase since the end of 2009. In the 15 years before 2008 it averaged 0.41 percent. A 0.1 percent difference may not seem large but it is almost 25 percent. Over time and for an economy the size of the United States the difference in lost consumption, wages and economic growth is enormous.

Real final sales tell similar story. Since January 2010 growth has averaged 1.9 percent each quarter. For the 25 years from 1983 to 2007 the average was 3.4 percent per quarter. That is not far from a 50 percent drop for the majority of the years since the financial crash and recession.  The toll of foregone prosperity in those numbers is unlike anything seen since the Depression.

In a recent NBC News/Wall Street Journal poll of American adults 57 percent said the economy was still in recession. The reason is no more complicated than the family paycheck.

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Bloomberg

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