Economic Releases

Well, this month's Employment Situation report was bad again. The unemployment rate dropped, but only because people dropped out of the workforce (they quit looking for work). The unemployment rate rose last month because of people entering the workforce (technically, not working and looking for work). Also, the payroll survey reported a continuing loss of jobs in the economy.

Consumer spending is the reason the GDP hasn't dropped much. I don't get it. Are there that many people who aren't worried about their jobs, that they keep spending even though the next job lost might be theirs? I guess so. But it sure seems odd.

Over at BEA, they released the quarterly GDP estimates. GDP grew in the second quarter at a 2.4 percent seasonally adjusted annual rate. What this means, is that if the same growth continued over a year, the GDP would have grown at 2.4 percent. The bulk of this came from increased defense spending; nondefense federal, state, and local spending declined. What's more cheering is the increase in nonresidential fixed investment. This is the kind of long-term investment that increases the economy's production, plus shows optimism on the behalf of business to improving economic trends.

The problem is that even at 2.4 percent, the economy is still in the stall zone, where slack in production and employment is not being taken up. To start taking up slack in the economy, and get people back to work, we need to get GDP growth up into the 3.5 to 4.0% range. And we have serious hazards to navigation ahead, including the backing up of the long-term bond rates. Steven Roach at Morgan Stanley is still concerned about the continuing lack of savings and the runup in interest rates precipitating a brutal and long-postponed current account rebalancing, and a fall into deflation.