The economy added a modest 42,000 nonfarm private jobs to payrolls in July on a net basis, according to today’s ADP employment report. The good news is that this is the sixth consecutive monthly gain. The bad news, as the accompanying press release advised, is that those six months of gains “have averaged a modest 37,000, with no evidence of acceleration.” Even an optimist has to concede that the pace so far in job creation has been tepid, at best. Unfortunately, it’s easy to think that more of the same is on tap for the foreseeable future. As such, that raises the possibility that the labor market remains vulnerable to a setback.
STILL WONDERING, WORRYING & DEBATING ABOUT DEFLATION
The market’s outlook for inflation has been meandering just below 2% since late June, based on the yield spread between nominal and inflation-indexed 10-year Treasuries. The implication: the jury’s still out on whether deflationary risks are the real deal or just a figment of the crowd’s imagination.
INCOME & SPENDING IN JUNE: GOING NOWHERE FAST
Today’s income and spending update for June was a whole lot of nothing. Literally. Disposable personal income and personal consumption expenditures were both flat last month vs. May. That’s not terribly surprising these days, but it’s hardly encouraging. Perhaps the best we can say is that it’s more of the same. Or, if you prefer, think of it as the latest installment on the new normal, which Pimco’s Bill Gross defines as “deleveraging, reregulation and deglobalization, all of which promote slower economic growth and lower inflation in developed economies while substantially bypassing emerging market countries that have more favorable initial conditions.”
TUESDAY’S READING LIST: 8.3.2010
►Seven Faces of “The Peril”
James Bullard, president and CEO of the St. Louis Federal Reserve Bank: “In this paper I discuss the possibility that the U.S. economy may become enmeshed in a Japanese-style, deflationary outcome within the next several years…I emphasize two main conclusions: (1) The FOMC’s extended period language may be increasing the probability of a Japanese-style outcome for the U.S., and (2) on balance, the U.S. quantitative easing program offers the best tool to avoid such an outcome.”
MANUFACTURING & JOBS: IMPERFECT TOGETHER
Today’s ISM Manufacturing Index was a winner in the sense that it showed the goods-producing sector expanded for the 12th straight month. Growth is good, more so than ever at this critical juncture. The crowd certainly understands this. As the AP reported today via the LA Times: “Wall Street reacts favorably to the Institute for Supply Management report, the first major economic indicator for July, sending the Dow up 208 points.” It’s certainly good news, but does it fall short on the labor front?
JULY WAS HOT, BUT COOLER DAYS AHEAD ARE LIKELY
July was a great month for the major asset classes—prices rose across the board. It was the best calendar month overall for the markets since last November, the last time that all the broad measures of stocks, bonds, REITs and commodities posted gains in a single month. Indeed, the Global Market Index (a passive measure of all the major asset classes) rose 5.7% in July, its best month since May 2009.
THE CAPITAL SPECTATOR ON VACATION…
Postings will be light to nonexistent for the rest of the week as I indulge in some mid-summer R&R. The usual editorial tricks resume on Monday, August 2. Meantime, stay cool, be well and watch out for falling economic numbers.
CORPORATE EARNINGS: HIGH STANDARDS & RECENT HISTORY
As rebounds in corporate profits go, recent history is probably about as good as it gets. That’s no surprise, considering that the hammering of corporate America just prior to the rebound was no less extraordinary. The implication: the best days are behind us. That doesn’t mean that corporate profits are destined for trouble, but recent history delivered a backdrop of nirvana for the stock market. If something less, and perhaps considerably less is coming, so too are attitude adjustments. The question is whether the crowd’s expectatiions are fully and fairly adjusted?
WHO KNEW? ZEROES CAME OUT ON TOP
Zero-coupon Treasuries with maturities of 20-plus years are reportedly the top-performing investment this year through July 22, posting a 21% return so far. Ok, so what’s going to dominate for the second half? A repeat performance with zeroes? Naw, it couldn’t be. Well, it’s not likely, right? On the other hand…
DEFLATION CONFUSION
It’s more complicated than it appears. From today’s Wall Street Journal: “After studying more than a decade of deflation in Japan, economists have slowly realized they have no idea how it works.”