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It was the focus of the markets all week. Job growth came to a halt in August. Many factors likely came into play—including not just soft demand in the U.S. but also concern over the direction of fiscal policy and the cost of hiring new workers. Now the questions are whether the flat job growth is temporary and how should fiscal and monetary policy respond' And incidentally, the rest of the economic news was not so bad.
 Equities ended the week mostly slightly down with sharp swings in opposite directions on Monday and Friday. Stocks jumped Monday after the personal income report met expectations for a moderate income gain and with spending rising significantly more than projected. A mild dip in pending home sales was not offsetting. But a bigger factor in the lift to stocks was that the damage from Hurricane Irene was much less than expected. Adding to gains was a Greek bank merger deal that bolstered financials in that country.
On Tuesday, consumer confidence was abysmal but stocks headed higher on news that several Fed FOMC members wanted more aggressive policy moves immediately—news that had not come out in the FOMC statement or in FedSpeak. Equities moved moderately higher for the most part on Wednesday after a better-than-expected ADP private employment report and on an upward revision to durables orders in the factory orders report. However, techs dropped on news that the Justice Department is opposing AT&T's proposed acquisition of T-Mobile USA.
 On Thursday, equities were down and it was all about nervousness about the next day’s employment report as indicator news for the most part either topped or met expectations. ISM manufacturing beat expectations by coming in marginally positive instead of negative. With revisions, initial jobless claims and construction spending matched projections. Motor vehicles were as forecast. However, chain store sales were healthy but fell short of expectations.
Stocks plunged Friday and the big factor was a flat payroll number for August—sharply below expectations. Additionally, financials fell sharply on news that the Federal Housing Finance Agency (FHFA) is suing a number of banks for allegedly misrepresenting mortgage bundles for investors. The FHFA believes that banks failed to ensure that the underlying loans in the securities were sound and misrepresented the securities’ quality. The FHFA is suing for reimbursement for some of the alleged losses from bad loans.
Equities were down this past week. The Dow was down 0.4 percent; the S&P 500, down 0.2 percent; the Nasdaq, up fractionally but essentially flat; and the Russell 2000, down 1.2 percent.
Equities were down sharply for the month of August. The Dow was down 4.4 percent; the S&P 500, down 5.7 percent; the Nasdaq, down 6.4 percent; and the Russell 2000, down 8.8 percent.
For the year-to-date, major indexes are down as follows: the Dow, down 2.9 percent; the S&P 500, down 6.7 percent; the Nasdaq, down 6.5 percent; and the Russell 2000, down 12.8 percent.
Weekly percent change column reflects percent changes for all components except interest rates. Interest rate changes are reflected in simple differences.
 Treasury yields dropped significantly this past week. Rates rose Monday on the favorable personal income report and as funds flowed into equities. Yields were led down Tuesday on news from FOMC minutes that a number of voters strongly felt that there should be an immediate loosening in policy. Rates fell at mid-week largely on better-than-expected numbers from ADP and Chicago PMI. Despite either stronger-than-expected or neutral economic news, yields fell Thursday on flight to safety ahead of the Friday jobs report. Rates fell further Friday on a very disappointing employment situation report.
 For this past week Treasury rates were mostly down as follows: the 5-year note, down 7 basis points; the 7-year note, down 13 basis points; the 10-year note, down 19 basis points; and the 30-year bond, down 22 basis points. The 3-month T-bill firmed 2 basis points while the 2-year note nudged up 1 basis point.
 Crude oil prices were little changed net for the week. The spot price for West Texas Intermediate rose almost $2 per barrel on Monday on favorable economic news—notably the personal income report. Crude gained over a buck and a half Tuesday as some Northeastern refineries continued to operate at reduced rates due to Hurricane Irene and as a result supplies were somewhat constrained. Prices also advanced after the CME Group Inc. declared force majeure on August heating oil shipments into New York as a result of Hurricane Irene. This extended the date to make deliveries by five days.
After lackluster trading on Wednesday and Thursday, crude declined Friday by almost $3 per barrel on the disappointing jobs report.
Net for the week, spot prices for West Texas Intermediate nudged up 76 cents per barrel to settle at $86.13.
This past week, economic news was mixed with more indicators topping expectations than not. However, the August jobs report overwhelmed other news and was deeply disappointing.
The big issue about the recovery is the lack of healthy job growth. And the August payroll numbers highlighted that problem as  the recent federal debt ceiling debate fiasco and stock market decline apparently spooked businesses to put a hold on hiring. Payroll jobs were unchanged in August, following a revised 85,000 increase in July, and revised 20,000 in June. The market consensus called for a 60,000 increase for the latest month. Revisions for June and July were down net 58,000.
As in recent months, private sector employment was a little less weak since government jobs pulled down the total. Private nonfarm payrolls edged up 17,000 in August, following a 156,000 gain in July and 75,000 increase in June. The August figure came in sharply lower than the median estimate for a 75,000 increase.
 In the private sector, goods-producing jobs edged down while service-providing jobs rose modestly. Goods-producing jobs slipped 3,000, following a 52,000 rise in July. Manufacturing jobs dipped 3,000 after a 36,000 boost the month before. Construction employment declined 5,000 after increasing 7,000. Mining expanded 6,000, following an 8,000 gain in July.
Private service-providing jobs rose 20,000 in August, following a 104,000 increase prior month. The August gain was led by health care (up 29,700) and professional & business services (up 28,000). In the latter category, temp services rose 4,700. Telecommunications led on the downside, falling 47,300 and with about 45,000 due to striking Verizon workers. Looking for any bright spot, adjusted for the Verizon strike, private payrolls rose 62,000 in August—which is still very anemic.
The public sector continued to contract as government employment fell 17,000, following a 71,000 drop in July. The drop was led by a 20,000 decrease at the local level with the federal government down 2,000. The return of about 22,000 Minnesota government workers from a partial government shutdown offset declines elsewhere as state employment rose 5,000.
Earnings growth fell back from the auto-sector induced jump in July. Average hourly earnings slipped 0.1 percent after jumping 0.5 percent in July. On a year-ago basis, wages are up a sluggish 1.8 percent, compared to 2.1 percent in July and a cycle high of 4.3 percent in December 2006.
Not only are employers not hiring, they are not expanding hours. The average workweek for all workers in August edged down to 34.2 hours from 34.3 in July.
From the household survey, the unemployment rate posted at 9.1 percent, equaling the prior month and expectations. Interestingly, household employment rebounded 331,000 after a 38,000 dip in July and a 445,000 drop in June. However, the labor force expanded 366,000 in the latest month, following declines of 193,000 in July and 272,000 in June.
 Other measures of the labor force continue to show slack market conditions. An expanded measure of unemployment and underemployment (including those part-time for economic reasons and marginally attached workers) showed underemployment at 16.2 percent in August, compared to 16.1 percent in July and to the cycle high of 17.4 percent in October 2009. The unemployed continue to have difficulties finding work as the median number of weeks of unemployment rose to 21.8 weeks in August from 21.2 the month before and compared to the cycle high of 25.5 weeks in June 2010.
The detail from the payroll survey is not favorable for upcoming key indicators. Aggregate weekly earnings for private sector workers fell 0.4 percent in August. This indicates that the private wages & salaries component of personal income is likely to decline significantly in August. Also, production worker hours in manufacturing slipped 0.2 percent, suggesting a dip in the manufacturing component of industrial production. However, a rebound in auto assemblies could offset.
The latest employment situation report clearly shows that momentum in the labor market has stalled. The curiosity is that while hiring has come to a standstill, layoffs have not picked up. Still, today’s news is not good news for the economy and places more emphasis on the importance of President Barack Obama’s upcoming plan for job creation and on whether the Fed will engage in QE3. The odds of another round of quantitative easing just went up.
The second biggest surprise of the week came from the Fed’s FOMC minutes. At the August 9 FOMC meeting, not only were there three dissenting votes, but some members wanted to take immediate action toward further monetary policy accommodation. The statement was a compromise between significantly opposing views. Importantly, participants did not see another recession although they saw the economy as being vulnerable to adverse shocks. What stands out from the minutes is that there was a stronger inclination for additional quantitative easing than stated or implied in the meeting statement.
The conditional pledge to keep policy rates low through mid-2013 was a compromise between those wanting to act immediately and those not seeing the need for further easing. The FOMC debated not just the time frame but also whether a specific unemployment or specific inflation rate should be targeted as a trigger for altering policy. The FOMC participants agreed that it was important to acknowledge publicly that the economy had softened and was growing less than projected. The Fed expanded its September meeting to two days on September 20 to 21. The additional time is to allow more in depth discussion of policy options. Incoming data will be critical to the discussions and the latest employment report may have tipped the balance toward some type of additional monetary accommodation.
 The latest employment report suggests a softening in income in August. But in July, the consumer made a nice comeback in terms of income growth and spending. PCE inflation, however, was on the warm side. Personal income in July rose a moderately healthy 0.3 percent after rising 0.2 percent in June. Wages & salaries grew a little more robust 0.4 percent, following a bump up of 0.1 percent the month before.
 Consumer spending rebounded a sharp 0.8 percent after slipping 0.1 percent in June. By components, durables jumped 1.9 percent after declining 1.1 percent in June. Clearly, motor vehicle sales are up as the supply constraint related parts shortages from Japan is easing. Nondurables increased 0.7 percent, following a 0.5 percent decrease in June. Services rose 0.7 percent after nudging up 0.1 percent in June. The latest numbers on spending allayed concern about a double-dip recession—at least until the jobs report was posted.
On the inflation front, the headline PCE price index jumped 0.4 percent, following a 0.1 percent decrease in June. The primary reason was energy costs with food also contributing. The core rate posted a 0.2 percent gain, matching the June pace and equaling expectations.
The latest inflation numbers may justify the three dissenting votes at the latest Fed policy meeting. Year-on-year, headline prices are up 2.8 percent, compared to 2.6 percent in June. The core is up 1.6 percent on a year-ago basis, firming from the 1.4 percent pace in June. Most Fed officials, however, are counting on lower oil prices and sluggish demand to bring inflation rates back down.
The bottom line is that the consumer sector is not down and out but actually adding to economic growth. Of course, the strength is coming from those with jobs and job growth would add to momentum.
 Motor vehicle sales essentially held steady in August after a moderate comeback the month before. First, unit sales of North American-made cars and light trucks came in at a 9.4 million annual rate versus July's 9.5 million rate and June’s 8.9 million. Imports posted at 2.7 million units—the same as the prior two months.
Sales of Nissan and Kia models surged, helping to offset declines of Toyota and Honda models still suffering from parts shortages from Japan. However, a significant portion of the Nissan and Kia sales came from models produced in the U.S.
Combined domestics and imports sold at 12.1 million units annualized in August, following 12.2 million in July and 11.6 million in June. This translates into a 0.8 percent slip in August after a 5.8 percent surge the month before. Sales were held back in part due to Hurricane Irene cutting back on traffic to showrooms late in the month on the East Coast and we could see a little bounce back in September from those wanting to shop in late August but could not.
Overall, this means that the consumer was holding up reasonable well. But on a technical note, autos likely will not be supporting August retail sales in terms of percent change as was the case in July. But splitting hairs technically, the final impact of autos on retail sales in August will also depend on price effects and on how much the Commerce Department allocates motor vehicle sales between consumer and business purchases and leases. Also, used cars and auto parts are a part of the auto component in retail sales.
 The debt-ceiling drama and the S&P downgrade of the US did in fact pull down consumer confidence which fell a very steep 14.7 points in August to 44.5 for the lowest reading since April 2009 (May revised three tenths lower to 59.2). Weakness was concentrated heavily in the leading component which is expectations where the consumer's outlook on employment, business conditions and on income all fell. The expectations index, at 51.9, is also at its lowest level since April 2009.
The present situation component, at 33.3 for a 2.4 point loss, shows less deterioration though the assessment of the current jobs market did weaken noticeably. Those saying jobs are currently hard to get rose 4.3 percentage points to 49.1 percent.
The good news is that despite the justifiable gloomy mood, consumers are still spending. And it is a well-worn comment here—that it is those with jobs that are still spending.
 On a positive note, ISM manufacturing did not decline—and that was a strong expectation after a number of key regional manufacturing surveys turned negative. But the August ISM manufacturing report still was not much to write home about as results were mixed and soft. The composite index edged only three tenths lower to a plus-50 reading of 50.6 that still indicates monthly expansion in general activity though at a very slow rate. The composite was held back by a slowing in employment and a slight monthly contraction in production.
Order readings also pleasantly held firm instead of plunging as some feared. The new orders index was up four tenths to 49.2, essentially showing no change from July which is very good news considering August's run of shocks. Backlogs extended three months of contraction but at a less aggressive rate while export orders continued to expand, though they did expand at a slowing rate. The bottom line is that manufacturing did not turn negative, helping to bolster the argument that the economy may be anemic but not falling back into recession.
 Another indicator arguing against a double dip is the Chicago PMI. Business slowed in the Chicago area this month but not very much with the purchasers' index coming in at 56.5, down only 2.3 points from July. August's rate is comfortably over 50 to indicate solid growth in the area's economy though at a slightly slower rate than July.
Details show solid but slowing growth for new orders and production. The new orders index posted at 56.9, compared to 59.4 in July. Production came in at 57.8, down from 64.3 in July but well over breakeven. Supplier deliveries slower substantially which is a sign of strong business activity. Chicago's sample, which includes both non-manufacturing and manufacturing firms, also added a bit to their workforces during the month. These results were surprisingly solid given the run of negative indications on August business conditions that included extremely weak readings on consumer spirits and a run of regional manufacturing reports reporting contraction.
 The housing sector is continuing to struggle to improve from near rock bottom. The turmoil over the federal debt ceiling debate and the drop in 401(k) balances (as stocks dropped) in July carried over to contract signings for existing home sales. Pending home sales declined 1.3 percent in July after a 2.4 percent jump the prior month. Signings are nonetheless above year-ago levels, up 14.4 percent in July. All regions showed monthly declines except for the West, which continues to show the highest level of sales contract activity. Also, expectations for closings for existing home sales are likely to be down, given the fact that a shrinking share of signings has actually made it to closing due to tighter lending standards and other factors.
 Home prices were trending flat in June with Case-Shiller's adjusted composite 10 index, which is a three-month average, holding unchanged for a second straight month. The composite 20 index edged 0.1 percent lower for a second straight month with 11 of the 20 cities showing declines in June. Seasonality is at play during spring and summer which is a strong time for home sales and, in what is a mild positive, seasonality is also at play this year as well. Unadjusted data show 1.1 percent gains for both the composite 10 and composite 20 indexes during June following 1.0 percent gains for both in May.
In contrast to month-to-month comparisons, year-on-year comparisons are less affected by seasonality with the adjusted composite 10 down 3.9 percent versus minus 3.8 percent for the unadjusted composite 10. The composite 20 shows deeper contraction at an adjusted minus 4.6 percent and an unadjusted minus 4.5. The trends for the report's year-on-year rates have been flat to slightly negative.
Essentially, home prices are not deteriorating further, but they also are not making progress across the broad spectrum of home types. The Case-Shiller numbers for June were weaker than those for the FHFA house price index. The FHFA measure is for home purchases funded by or bundled by government housing agencies and are based on less risky conventional loans. The Case-Shiller measure includes sales based on riskier types of mortgages.
 Construction spending fell in July but followed a sharply upwardly revised June. Construction outlays in July declined 1.3 percent, following a revised 1.6 percent advance in June (originally a 0.2 percent increase). The July decrease was led by a drop in public sector outlays with private residential and private nonresidential also slipping.
Public construction fell 2.1 percent in July after a 0.8 percent rise the prior month. Private residential outlays declined 1.4 percent after gaining 1.1 percent in June. July weakness in this component was led by alterations and improvements which had surged in recent months. New one-family outlays in July edged up 0.1 percent, new multifamily construction rebounded 1.4 percent, and non-new residential outlays fell 2.9 percent.
On a year-ago basis, overall construction outlays improved to up 0.1 percent in July from down 1.3 percent in June. Net, construction activity appears to have bottomed out but is not showing much upward momentum. Nonresidential may be improving while residential is trending flat and public expenditures are slipping.
Certainly, the August employment report was disappointing and does not bode well for economic growth in the second half. Given that other economic news was on average very mildly positive, is the hiring issue one of confidence and will there be a rebound in September' We will at least get a Verizon rebound (from the return of striking workers) but more than that is needed. Markets await President Obama’s job creation plan, the results of the Super Committee recommendations for deficit reduction, and the Fed’s September 21 FOMC announcement for any additional monetary stimulus.
The holiday shortened week begins Tuesday with the ISM nonmanufacturing report. Traders hope it will be as positive as last week’s Chicago PMI. The Fed’s Beige Book mid-week will be parsed for signs of any further slowing that might encourage QE3. International trade follows on Thursday—traders will be watching for the impact of slowing global growth on exports.
All Markets Closed
The composite index from the ISM non-manufacturing survey for July edged down 0.6 points to 52.7. Unfortunately weakness was led by the new orders index, falling nearly 1.9 points to 51.7 and barely staying above the breakeven level of 50. This index was in the 60s as recently as March. Backlog orders shrank at a faster pace, down 4-1/2 points in the month to 44.0. Also slowing was the survey’s employment index at 52.5 versus 54.1 in June. On the upside, business activity, a component that is akin to a production index on the manufacturing side, rose more than 2-1/2 points to 56.1.
ISM non-manufacturing composite index Consensus Forecast for August 11: 51.0
Range: 49.7 to 56.6
The Beige Book being prepared for the June 20-21 FOMC meeting is released this afternoon. With the FOMC meeting expanded to a two-day meeting to more extensively discuss policy options (including QE3) and with the abysmal jobs report for August, the Beige Book will get more attention than usual. Changes in the description of consumer and labor markets are likely to be of key focus.
The U.S. international trade gap worsened further in June to $53.1 billion, following the unexpected ballooning of the gap the month before to $50.8 billion. Weakness was led by exports which dropped 2.3 percent after slipping 0.5 percent in May. Imports actually dipped 0.8 percent, following a 2.9 percent jump the prior month. The jump in the trade deficit was led by the nonpetroleum goods gap which widened to $36.9 billion from $33.7 billion in May. As expected, the petroleum goods gap narrowed to $29.6 billion from $33.7 billion in May. The services surplus nudged down to $14.5 billion in June from $14.6 billion the month before.
International trade balance Consensus Forecast for July 11: -$51.9 billion
Range: -$55.0 billion to -$49.0 billion
Initial jobless claims in the August 27 week fell 12,000 to 409,000, but the improvement was offset in part by a 4,000 upward revision to the prior week to 421,000 which is the highest level since mid-July. Showing no improvement from a month ago is the four-week average which at 410,250 is up for the second week in a row and compares against 408,250 at month end July. Continuing claims fell a slight 18,000 in data for the August 20 week to 3.735 million with the four-week average, down 3,000 to 3.726 million, trending flat for the last two months.
Jobless Claims Consensus Forecast for 9/3/11: 408,000
Range: 400,000 to 415,000
Consumer credit outstanding in June surged $15.5 billion, following a $5.1 billion rise the month before. The latest jump was the largest gain in more than four years. The gain was led by a $10.3 billion surge for non-revolving credit, reflecting June's rebound in motor vehicle sales. But the best news was revolving credit which rose $5.2 billion for a second straight solid gain that hints at consumer confidence to take on new debt.
Consumer credit Consensus Forecast for July 11: +$6.0 billion
Range: +$1.0 billion to +$17.0 billion
Wholesale inventories growth slowed in June to 0.6 percent for the lowest rate of the year. This is welcome news given the slowdown in sales. Sales at the wholesale sector also rose 0.6 percent in the month to leave the stock-to-sales ratio unchanged at 1.16.
Wholesale inventories Consensus Forecast for July 11: +0.8 percent
Range: +0.6 to +1.8 percent
R. Mark Rogers is the author of The Complete Idiot’s Guide to Economic Indicators, Penguin Books, 2009.
Econoday Senior Writer Mark Pender contributed to this article.
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