By Chris Cermak
WASHINGTON (MNI) – Economists are slowly moving toward the view
that weakening demand growth could be pushing the U.S. labor market and
wider economy into much more than just a temporary slowdown.
Yet shock over the anemic May-June payrolls figures still has many
hoping that businesses may have overshot, prompting most forecasters to
predict a modest recovery in payrolls figures for July.
Non-farm payrolls due out Friday are expected to show a 100,000 net
increase in jobs last month, according to a survey of economists by
Market News International, including 125,000 more private payroll slots.
The risks are mostly tilted to the downside, after economists
vastly overestimated job growth in each of the past two months. Payrolls
rose just 18,000 in June and 25,000 in May, amid output growth of just
1.3% in the second quarter.
“If you look at most indicators of economic performance, they’ve
been slowing progressively the last several months,” said Kevin Harris,
chief economist for Informa Global Markets, which is below market
consensus with a forecast of a 50,000 job gain in July.
July was supposed to be the month that the economy recovered from a
series of temporary setbacks, including supply disruptions from the
Japanese earthquake, high gas prices and severe weather in the U.S.
A temporary government shutdown in Minnesota could also have some
minor negative impact on the July numbers, while some speculate that the
protracted debt ceiling debate also caused some businesses to postpone
hiring decisions.
But Harris told MNI that many economists remain “reluctant” to take
the view that the disappointing numbers in May and June are more than
the result of “special factors.” He argues instead that a stream of data
and business surveys suggests “the underlying problem was that demand
has weakened.”
The advance second-quarter GDP report recorded consumer spending
growth of 0.1%, far weaker than most economists had expected. The trend
continued into July, as Commerce Department figures this week recorded a
0.2% drop in personal spending and a 0.1% rise in personal income.
“It does suggest that U.S. business confidence was undermined by
things other than Japan’s tragedy and the supply chain disruptions,” Sal
Guatierri, senior economist with RBC Capital Markets, told MNI.
Manufacturing growth and hiring has also slowed sharply, in part
due to supply disruptions but also the result of less demand. The
Institute for Supply Management’s manufacturing survey fell to 50.9 in
July, its lowest level in two years, while new orders turned negative.
“That’s clearly disappointing. It looks like the manufacturing
sector, which has been a stalwart of the recovery, is also slowing,”
said Guatierri.
The outlook is not much more positive for August, when a dispute
over Federal Aviation Administration funding will show up in payrolls
numbers.
Private forecasters suggest as many as 70,000 people may have lost
their jobs amid the FAA shutdown. The number could be lower as some
contractors have kept employees working, on the faith that the latest
crisis will be resolved when Congress returns from August recess.
Non-farm payrolls for July will be released at 8:30 a.m. ET by the
Labor Department.
— Chris Cermak is a Washington reporter with Need to Know News
** Market News International Washington Bureau: 202-371-2121 **
[TOPICS: MAUDS$,M$U$$$]