“This was a crazy week that people will long remember. On the political front, the U.S. government finally agreed to raise the debt ceiling. Unfortunately there were clear indications that the process negatively impacted the economy over the last couple of weeks.
In Europe, the financial crisis continued to spread. The President of the European Commission, José Manuel Barroso, finally acknowledged that containment has been lost and that the crisis has spread beyond Greece, Ireland and Portugal: “[I]t is clear that we are no longer managing a crisis just in the euro-area periphery.”
And on Friday, Standard & Poor’s downgraded U.S. debt to AA+. This will lead to related downgrades on Monday. However the regulatory agencies have already said there would be no change for risk-based capital purposes for financial institutions
There was plenty of economic data released too. Let’s start with employment:
The BLS reported that payroll employment increased 117,000 in July and that the unemploymentrate decreased to 9.1%. So far the economy has added 1,148,000 private sector jobs this year, or 164,000 per month. There have been 930,000 total non-farm jobs added this year or 133,000 per month.
The pace of job growth has slowed over the last three months, and the overall pace is barely enough to keep up with the growth in the labor force. The unemployment rate has only declined from 9.4% in December 2010 to 9.1% in July. Mostly moving sideways …
This was another weak employment report and reminds us that unemployment and underemployment are critical problems in the U.S. There are 6.8 million fewer payroll jobs now than before the recession started in 2007 with 13.9 million Americans currently unemployed. Another 8.4 million are working part time for economic reasons, and about 4 million more workers have left the labor force. Of those unemployed, 6.2 million have been unemployed for six months or more. Clearly the overall employment situation remains grim.
Other data was mostly weak too. The ISM manufacturing index declined to the lowest level since July 2009, and the ISM non-manufacturing index fell to the lowest level since early 2010. Auto sales were above expectations, although still below the pre-tsunami levels.
CoreLogic reported home prices increased in June, although the increase was mostly seasonal. And private construction spending increased slightly in June, although public spending is falling sharply.
On Friday, Goldman Sachs lowered their outlook through 2012: “We have lowered our growth forecast further and now expect real GDP to increase just 2%-2½% (annualized) through the end of 2012. Since this pace is slightly below the US economy’s potential, we now expect the unemployment rate to be at 9¼% by the end of 2012, slightly above the current level. We now see a one-in-three risk of renewed recession …”
It was another very difficult week.”
Have a nice weekend!