With U.S. payrolls up by 80,000 in June, you might think: No big deal.
After all, at least the number is heading up. And the stock market's move on Friday morning – down – could be nothing more than a reaction to missed expectations. Economists had been expecting slightly more robust job gains of about 90,000 last month. And it is likely that investors harboured secret hopes of an even bigger number following the upbeat ADP report on private sector employment, released on Thursday morning.
However, there is probably more going on here than sour faces over missed expectations. The actual numbers are disheartening. For one, economists point out that June's job gains are too weak to make a dent in the unemployment rate, which is holding steady at 8.2 per cent, because a growing population means that more people are entering the workforce. So while 80,000 is a gain, it doesn't actully help the employment situation.
Even worse, the so-called effective unemployment rate – which takes into account discouraged workers and any part-time workers who are looking for full-time work – actually increased last month, to 14.9 per cent from 14.8 per cent in May.
Meanwhile, the longer-term trends are also ugly. Sal Guatieri, senior economist at BMO Nesbitt Burns, points out that the average job gains in the second quarter, at just 75,000 following revisions, was the weakest in nearly two years and showed a sharp drop from the first and second quarters. In other words, month-to-month volatility is a weak excuse here; the trend is down.
The details of the June payrolls report were also disconcerting. Ian Shepherdson, chief U.S. economist at High Frequency Economics, noted that the areas that had been responsible for the weakening jobs reports between February and May – construction, business services and leisure/recreation components – were the ones showing gains last month.
His interpretation: "the focus of the softening has shifted away from the most gas-price sensitive components, perhaps signaling a broader malaise; this is not a good development."
Of course, all this downer-talk comes with an upside: Can markets expect the Federal Reserve to get more aggressive in dealing with the economic slide? In its last monetary policy statement, the Fed extended a stimulus program casually known as Operation Twist – but kept what is considered its big gun, quantitative easing, in reserve.
Many commentators on Friday morning wondered if the time has come for a third round of quantitative easing, or QE3. Mr. Shepherdson said that "the pressure on the Fed to take more action will be incrementally ratcheted up."
Unfortunately, few observers believe the Fed's stimulus options at this point would actually do much. For example, Chris Jones, an economist at Toronto-Dominion Bank said that QE "is unlikely to translate into noticeable job growth."
There was a time when weak economic reports could generate gains in the stock market, as investors yelped in anticipation of a Fed Response. Now, with the S&P 500 down 1.1 per cent in mid-morning trading on Friday, investors don't appear to see the Fed as a source of hope.