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Once again, the employment situation report was less than hoped for. Despite the blue chips and broad equities being down for the week, it hardly was all gloom and doom for economic news. Importantly, there are signs that manufacturing is not as soft as suggested by some recent surveys. And construction continues to make slow progress.
 Equities ended the week mixed, with a disappointing employment report sharply tugging down on major indexes at week’s close. But at the start of the week, most stocks advanced despite disappointing global manufacturing data, including a U.S. ISM manufacturing index that fell into negative territory. Stocks rebounded late Monday after Eurozone leaders agreed on steps to bolster the region's banking system. Equities posted moderately strong gains Tuesday on news of stronger-than-expected factory orders for the U.S. Motor vehicles sales rebounded in June, adding to lift. Also, weak economic data in Europe raised expectations for a rate cut by the European Central Bank later in the week.
Equities were closed in the U.S. at mid-week for the Independence Day holiday. Most indexes declined Thursday despite an unexpected drop in initial jobless claims and a surprisingly strong ADP employment gain for June. Three central banks cut rates Thursday--the Bank of England, People’s Bank of China and the European Central Bank. By Thursday the policy actions were largely expected for two—but not by the PBoC. What tugged down on markets were post-meeting comments by European Central Bank President Mario Draghi that were negative about the outlook for Europe. He said that the rate cuts likely would have limited impact. Also, the U.S. non-manufacturing ISM was a little weaker than expected.
On Friday, an anemic 80,000 gain in total payroll jobs for June led stocks down. While earlier published forecasts resulted in a median market forecast for 90,000, Thursday’s ADP forecast for a 176,000 boost for private employment raised expectations—at least for many traders, even if less so for economists.
Equities were mixed this past week. The Dow was down 0.8 percent; the S&P 500, down 0.5 percent; and the Wilshire 5000, down 0.2 percent. The Russell 2000 gained 1.1 percent while the Nasdaq edged up 0.1 percent.
For the year-to-date, major indexes are up as follows: the Dow, up 4.5 percent; the S&P 500, up 7.7 percent; the Nasdaq, up 12.8 percent; the Russell 2000, up 8.9 percent; and the Wilshire 5000, up 7.9 percent.
Weekly percent change column reflects percent changes for all components except interest rates. Interest rate changes are reflected in simple differences.
 Treasury yields ended the week down moderately. At the start of the week, a negative ISM manufacturing report sent rates down. However, on Tuesday yields rebounded on a better-than-expected factory orders report.
Thursday, Treasury yields eased despite favorable reports on the labor market. Rates dipped on flight to safety after discouraging remarks by European Central Bank President Mario Draghi on the outlook for European economies. Yields fell further on Friday on the anemic jobs report.
For this past week Treasury rates were down as follows: 3-month T-bill, down 1 basis point; the 2-year note, down 4 basis points; the 5-year note, down 7 basis points; the 7-year note, down 10 basis points; the 10-year note, down 10 basis points; and the 30-year bond, down 9 basis points.
For broader perspective, short-term rates continue to be held captive by the Fed’s pledge to keep policy rates exceptionally low through 2014, forcing even the 2-yr note to act like a short-term bill. Longer-maturity rates continue to ease on flight to safety over European debt and recession in parts of Europe and over recently soft U.S. data.
 The spot price for West Texas Intermediate barely budged net for the week although there were sizeable daily swings. The big moves were on Monday (down about $2-1/2 per barrel), Tuesday (up over $5), and Friday (down about $2-3/4). The movers should sound familiar—a negative ISM manufacturing report, speculation of central bank cuts (plus Iranian saber rattling on Tuesday), and the disappointing jobs report.
Net for the week, the spot price for West Texas Intermediate edged down 51 cents per barrel to settle at $84.45.
The June employment situation left most traders in down mood. But there were a number of positive economic releases, including motor vehicles, one of two manufacturing surveys, factory orders, and construction outlays.
 Job creation was sluggish in June but there are some positive signs for manufacturing and personal income. The unemployment rate remains elevated and unchanged at 8.2 percent in June. Payroll jobs in June advanced a modest 80,000, following gains of 77,000 in May (originally 69,000) and 68,000 in April (previous estimate of 77,000). The net revisions for April and May were down 1,000. The market consensus was for 90,000.
 Private payrolls advanced 84,000 in June after gaining 105,000 the prior month. Expectations were for a 100,000 increase.
Relative strength was in the goods-producing sector. Employment in this sector rebounded 13,000 after a 21,000 decline in May. Manufacturing increased 11,000 after a 9,000 rise in May. Construction posted a modest 2,000 gain after dropping 35,000 the month before. Mining edged up 1,000, following a 3,000 advance in May.
The private service-providing industry is where the June numbers were most sluggish. This sector showed only a 71,000 gain in June after advancing 126,000 the prior month. The public sector continued to shrink with a 4,000 dip in government employment—much smaller than the May drop of 28,000.
Average hourly earnings improved to a 0.3 percent boost from 0.2 percent in May. Two leading indicators for hiring were up. First, the average workweek edged up to 34.5 hours from 34.4 in May. Second, temp workers were up 25,000 after a 19,000 boost in May.
Positives in the report included a notable gain in manufacturing employment, significant improvement in production hours in manufacturing, and a sizeable rise in aggregate earnings. In addition to the boost in jobs, manufacturing also saw a rise in the workweek to 40.7 hours from 40.6 hours, resulting in production worker hours gaining 0.6 percent in June and suggesting a strong manufacturing component in industrial production. These manufacturing numbers call into question the weakness in manufacturing suggested by recent surveys. Separately, overall aggregate earnings posted a substantial 0.7 percent increase, pointing to a healthy number for the wages & salaries component of personal income.
Trying to explain recent weakness in payroll job growth, some economists continue to argue that seasonal factors are working against the seasonally adjusted data as unadjusted numbers have been better in winter months and less so during summer. Seasonal factors traditionally assume the opposite. There may be some truth to that. Unadjusted total payroll employment rose 391,000 while the seasonally adjusted number was up 80,000.
The just released report for June is the last employment report before the Fed meets next on July 31-August 1. Some traders believe the Fed must seriously consider QE2 after another anemic jobs report. Nonetheless, there will be plenty of internal debate at the FOMC whether additional ease will have any notable impact and whether the costs outweigh the benefits.
But there was little noticed forward looking news on the labor market just prior to the release of the jobs report. There may be more hiring ahead. According to Monster Worldwide, an online careers and recruiting firm, online job openings rose 4.1 percent in June to 153 points from 147 in May. The gain was led by jobs available in the transportation and warehousing sector, while retail positions regained momentum.
 Either consumers are little more optimistic about the economy than they admit in confidence surveys or cars are getting too old and need replacing or some of both. Regardless, demand picked back up in this portion of the consumer sector in June.
Unit new motor vehicle sales rebounded 2.2 percent to a 14.1 million annual rate from May's rate of 13.8 million. Strength was in domestic cars which jumped 5.5 percent and in domestic light trucks, up 3.6 percent, for combined domestic units of 11.1 million annualized versus 10.6 million in May.
Car imports fell 6.9 percent while light truck imports dropped 2.0 percent for a combined 3.0 million units after 3.2 million in May.
Taking domestic and imports together, sales of both cars and trucks show similar gains, gains that point to strength for the motor vehicle component of the June retail sales report. It also will support the manufacturing component in industrial production.
 This past week’s national manufacturing surveys turned in mixed results. The ISM manufacturing report dropped from moderate growth to marginal contraction in June. Meanwhile, the newly introduced Markit survey showed mild deceleration but still positive growth.
The ISM's manufacturing index shows contraction in June for the first time since July 2009, declining to 49.9 (breakeven at 50) from 53.5 in May. Forward momentum hit the wall at the new orders index, at 47.8 in June versus 60.1 the month before to show contraction for the first time since April 2009 and the degree of the decline was the steepest since October 2001. For what it’s worth, the October 2001 drop in orders was followed by an almost equal rebound the next month and was above the pre-drop level the second month afterwards.
For the latest report, export orders, reflecting weakness in Europe and China, were a serious negative, at 47.5 for the first contraction since June 2009 and the lowest reading since April 2009. According to the ISM survey, manufacturers are working down backlogs which stood at 44.5 in June.
Positives were continued growth in production and in employment though strength will not last long without new orders.
According to a different national survey, manufacturing is not so glum and still modestly positive. Markit Economics' Purchasing Managers’ Index (PMI) for the US eased marginally to 52.5 in June versus last week's flash estimate for 52.9 and down from 54.0 in May. The report says the results show the weakest rate of growth in 18 months. The new orders index eased but remained notably positive—53.7 in June, compared to 54.6 in May. Exports orders, at a sub-50 reading of 48.3, are in contraction as they are in some regional surveys. Backlogs, however, are contracting, though only very slightly at 49.6.
Plant managers are still somewhat optimistic as the report's sample continued to add to its workforce, though at a slower rate—52.8 versus 54.3 in May. But here too orders will have to strengthen to keep up demand for labor.
At this point, regional and national surveys on manufacturing are showing mixed results. But for notable improvement, demand will need to improve in the U.S. and Asia. Europe eventually will improve but not immediately. Auto sales are helping in the U.S. although other retail sales appear to be sluggish. While the latest employment report was disappointing overall, the manufacturing jobs gain and boost in hours are favorable for this sector.
For a final note on manufacturing—new factory orders rebounded a stronger-than-expected 0.7 percent in May, following a 0.7 percent drop the month before. The durables component was notably strong with 1.3 percent boost in June and the nondurables component gained 0.2 percent despite a drop in oil prices.
 The non-manufacturing sector for a change appears to be doing better than the manufacturing sector.
ISM's non-manufacturing report showed a composite headline index that slipped to 52.1 versus 53.7 in May but it's still safely above the 50 level under which monthly contraction is indicated. The new orders index is the most important component and it posted at 53.3, compared to 55.5 the prior month, and is a sustainably positive rate but still the lowest of the year. Export orders fell in the month which is no surprise given troubles in Europe and China, as did total backlog orders.
The business activity component slowed significantly to its slowest rate of monthly growth in more than 2-1/2 years but remained in positive territory. But one positive was expansion in the sample's employment which had stalled in the prior month.
ISM’s non-manufacturing report covers services, construction, agriculture, and natural resources.
 While manufacturing is wavering, construction appears to be picking up steam. Construction spending jumped 0.9 percent in May, following a 0.6 percent gain in April.
The increase in May was led by private residential outlays which increased 3.0 percent after a 1.7 percent boost in April. The new multifamily subcomponent showed the greatest strength but the new single-family subcomponent also was notably positive. Also behind the latest gain was a 0.4 percent rise in private nonresidential outlays. In contrast, public outlays declined 0.4 percent in May after a 0.9 percent drop the prior month.
On a year-ago basis, overall construction stood at up 7.0 percent in May, compared to 8.9 percent the month before.
Overall, the private sector is improving although from still low levels of activity. Nonetheless, these numbers are a plus for second quarter GDP. Also, the latest numbers show a modest shift in recovery strength from manufacturing to construction. The outlays numbers support that argument pushed by data the prior week on new home sales, pending home sales, and Case-Shiller home prices.
Clearly, stronger jobs growth is needed to bolster to the recovery and the economy’s rate of growth. Nonetheless, there has been some improvement recently in housing and manufacturing may not be as sluggish as feared. Consumers are still spending (at least those with jobs). So, the economy is muddling along at a modest growth rate and could pick up strength—especially if the fiscal cliff issue is addressed. However, that issue likely will not be resolved until the last minute.
After Friday’s soft employment report, this week’s highlight may be the Fed’s FOMC minutes (Wednesday) as traders look for any inclination of QE3. Earlier that morning, the trade deficit will add detail to foreign and domestic demand. Lower oil prices may show up in import prices (Thursday) and in the PPI (Friday). Friday’s consumer sentiment reading will indicate whether lower gasoline prices are offsetting weak job growth.
Consumer credit outstanding gained $6.5 billion in the April report. The Federal government component of this report continued to post large gains as demand for student loans was very strong. For indications on the consumer, the April report shows softness with non-revolving credit down $3.4 billion.
Consumer credit Consensus Forecast for May 12: +$8.5 billion
Range: +$5.0 billion to +$15.6 billion
The NFIB Small Business Optimism Index edged 1 tenth lower in May to 94.4, showing what the report says are no signs that economic activity will pick up this year. The report noted that expectations for future sales were the lowest for a recovery since 1973 and that capital expenditures were tied to maintenance, not expansion. Yet there were positives led by slight improvement in plans to increase employment and by some strength in compensation as well as improvement in collecting and paying bills on time.
NFIB Small Business Optimism Index Consensus Forecast for June 12: 92.0
Range: 91.5 to 93.5
The U.S. international trade gap in April improved but on a drop in imports. In April, the U.S. trade gap shrank to $50.1 billion from $52.6 billion in March. Exports dipped 0.8 percent after a 2.5 percent boost in March. Imports fell 1.7 percent after a 5.2 percent jump the prior month. The improvement in the trade gap was led by the non-petroleum goods deficit which narrowed to $36.5 billion from $338.0 billion in March. The petroleum goods gap also shrank—to $28.0 billion from $28.6 billion. The services surplus decreased marginally to $14.8 billion from $14.9 billion.
International trade balance Consensus Forecast for May 12: -$48.7 billion
Range: -$51.5 billion to -$42.5 billion
Wholesale inventories rose 0.6 percent in April, well below a 1.1 percent jump in sales at the wholesale level. The smaller rise in inventories was not enough to bring the stock-to-sales ratio down, at least to two decimal places. The ratio was steady for a seventh straight month at a lean 1.17. Turning to sales, April's jump was concentrated in farm products and petroleum products, two volatile categories subject to price swings. Sales of durable goods at the wholesale level rose only 0.1 percent.
Wholesale inventories Consensus Forecast for May 12: +0.3 percent
Range: -0.2 to +0.5 percent
The Minutes of the June 19-20 FOMC meeting are scheduled for release at 2:00 p.m. ET. Traders will look for any additional inclination of the Fed toward QE3 and more detail on the FOMC’s view of the economy.
Initial jobless claims fell 14,000 in the June 30 week to 374,000 which was well under Econoday expectations for 386,000. In a small offset, the prior week was revised 2,000 higher to 388,000 which however is still 4,000 lower than the prior week. The four-week average, at 385,750, was down slightly for a second straight week. Still, the average's trend versus a month-ago was not favorable and showed a 5,000 to 10,000 increase. Improvement for continuing claims, like that for initial claims, has stalled. Continuing claims in data for the June 23 week rose 4,000 to 3.306 million with the four-week average down 3,000 to 3.304 million.
Jobless Claims Consensus Forecast for 7/7/12: 375,000
Range: 355,000 to 395,000
Import prices fell a very sizable 1.0 percent in May for the first decline since October. Year-on-year import prices were down 0.3 percent for the first decline since October 2009. And it was not just oil. Excluding petroleum, import prices slipped 0.1 percent in May with the year-on-year rate at only plus 0.3 percent which is the lowest since December 2009. Export prices were also down, falling 0.4 percent in May. Year-on-year export prices were down 0.1 percent for their first decline since October 2009.
Import prices Consensus Forecast for June 12: -1.9 percent
Range: -2.8 to -0.1 percent
Export prices Consensus Forecast for June 12: -0.2 percent
Range: -0.7 to +0.2 percent
The U.S. Treasury monthly budget report showed a May gap of $124.6 billion. Eight months into the government's fiscal year, the Treasury's deficit stood at $844.5 billion, which is very sizable but down 8.9 percent versus a year ago. Receipts are up 5.4 percent so far this fiscal year with outlays fractionally lower. Looking ahead, the month of June typically shows a surplus but in recent years has turned to deficit. Over the past 10 years, the average surplus for the month of June has been $4.2 billion and over the past 5 years the average deficit has been $16.2 billion. The June 2011 deficit came in at $43.1 billion.
Treasury Statement Consensus Forecast for June 12: -$75.0 billion
Range: -$80.0 billion to -$75.0 billion.
The producer price index in May dropped a sharp 1.0 percent, following a fall of 0.2 percent in April. The core PPI, however, advanced 0.2 percent after rising 0.2 percent in April. By major components, energy fell 4.3 percent, following a decrease of 1.4 percent in April. Gasoline prices plunged a monthly 8.9 percent after falling 1.7 percent the prior month. Food cost inflation dropped to minus 0.6 percent, following a 0.2 percent rise in April. Within the core, over a quarter of the May rise was attributed to the pharmaceutical preparations index, which climbed 0.7 percent.
PPI Consensus Forecast for June 12: -0.4 percent
Range: -1.2 to +0.2 percent
PPI ex food & energy Consensus Forecast for June 12: +0.2 percent
Range: -0.2 to +0.3 percent
The Reuter's/University of Michigan's consumer sentiment index slipped to 73.2 for the final June reading which, given a 74.1 reading at mid-month, points to a low 72 reading for the final two weeks. The index opened the year at 75.0. Weakness was seen in both expectations, down 1.1 points to 67.8, and in currents conditions which is 6 tenths lower to 81.5.
Consumer sentiment Consensus Forecast for preliminary July 12: 73.5
Range: 70.0 to 76.5
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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