Payrolls Rise Only Slightly

S&P says the July employment report increases the odds of a double dip recession. Also: factory orders slide and consumer spending inches higher

The Bureau of Labor Statistics reported that July payrolls rose a meager 6,000, compared with the 55,000 expected. The report was slightly mitigated by the upward revision of June payrolls from 36,000 to 66,000. The unemployment rate held at 5.9%, as expected.

Employment dropped for manufacturing (7,000 jobs), construction (30,000), and government (16,000). The construction drop was partially seasonal, while the government drop reflects the timing of the school year. Temp services were also down, so this doesn't suggest substitution of temps for permanent workers.

The real news, however, was in the degree of weakness seen in both the workweek and hourly earnings on a non-seasonally adjusted year-over-year (NSA Y/Y) basis, says S&P MMS. The workweek crashed to 34.0 hours from 34.3 hours, which leaves the series back at the low seen immediately following the attacks and supports the other data seen so far on the month (e.g. ISM-manufacuring) that suggests the economy hit a big "air-pocket" in July.

As for hourly earnings, while earnings managed to rise 0.3% on the month on a seasonally-adjusted basis, the NSA Y/Y figure slowed to only a 2.9% rate. This figure is well below the 3.4% pace seen in June, marks a notable slowdown from the 4.0% pace that was in place at the end of 2001, and is also the lowest growth rate since February of 1996.

The data increase the odds of a double dip recession, and a possible Fed rate cut, S&P says.

June Factory Orders Slide

Factory orders fell 2.4% in June, in line with expectations for a 2.0% drop. Shipments fell 1.0%, while inventories fell 0.5%. The weak inventories could push second-quarter GDP down further.

Durable orders were revised downward to -4.1% from -3.8%, while nondurables fell 0.4%. The only strength remains defense industries. The data again confirm the sudden weakness of manufacturing after an unexpectedly strong spring.

Consumer Spending Inches Higher

The Commerce Dept. reports that consumer spending rose 0.5% in June, near the 0.6% consensus forecast. Personal income was up 0.6%, just abovee the 0.5% consensus. The data suggest that consumers are still spending freely, although the savings rate did tick up to 4.2% from 4.1% in May.

Note that the GDP revision raised the savings rate by over a percentage point. The problem is in the July data, which suggest a drop in personal income.

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