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The past week was mixed in terms of economic news but at the end of the week, all that mattered was the release of the August employment situation. Job growth was positive but extremely anemic. The unemployment rate dipped—but for the wrong reason. Still, there were signs of continued recovery—however, mostly outside of the labor market.
 After a Monday Labor Day holiday, equities were mixed on Tuesday on mixed economic news. The Markit and ISM manufacturing surveys along with construction outlays disappointed. But motor vehicle sales were favorable, but as typical, the auto news dribbled throughout the day. On the positive side, traders provided lift to stocks on belief that European Central Bank President Mario Draghi would unveil plans on Thursday to lower borrowing costs for countries such as Spain and Italy.
At mid-week, with little U.S. economic news, corporate and overseas news got the spotlight. FedEx—seen as a bellwether stock for the economy—declined after lowering estimates for profits. Traders continued to expect action by the ECB on Thursday even though some warned that the ECB might not act until the German constitutional court rules on the region's bailout funds on September 12. Equities jumped sharply Thursday on a sizeable drop in initial jobless claims, a relatively large rise in ADP employment for August, and a positive and above expectations reading for ISM non-manufacturing.
Stocks rose Friday despite a very disappointing jobs report. Traders saw the sluggish data as leading to additional easing by the Fed at its September 12-13 FOMC meeting.
Equities were up this past week. The Dow was up 1.6 percent; the S&P 500, up 2.2 percent; the Nasdaq, up 2.3 percent; the Russell 2000, up 3.7 percent; and the Wilshire 5000, up 2.4 percent.
For the year-to-date, major indexes are up as follows: the Dow, up 8.9 percent; the S&P 500, up 14.3 percent; the Nasdaq, up 20.4 percent; the Russell 2000, up 13.7 percent; and the Wilshire 5000, up 14.0 percent.
Weekly percent change column reflects percent changes for all components except interest rates. Interest rate changes are reflected in simple differences.
 Rates nudged up modestly the first two days of trading on Tuesday and Wednesday on hopes that the ECB would engage in additional easing at its Thursday policy meeting. Rates were weighed down in part Tuesday on mostly negative economic news—notably PMI manufacturing, ISM manufacturing and construction outlays.
Treasury yields rose notably Thursday on the drop in initial jobless claims, healthy ADP employment, and gain in ISM non-manufacturing. Also adding lift to rates was the announcement by the ECB that it will implement a new bond purchasing program. Rates dipped slightly on Friday after the anemic jobs report but with increased hope of Fed easing limiting the rate decline. Yes, that sounds backwards but if the Fed engages in additional quantitative easing, that might (emphasis on might) boost the economy a bit, putting upward pressure on rates.
For this past week Treasury rates were up as follows: 3-month T-bill, up 1 basis point; the 2-year note, up 3 basis points; the 5-year note, up 5 basis points; the 7-year note, up 9 basis points; the 10-year note, up 12 basis points; and the 30-year bond, up 15 basis points.
 The spot price of crude ended the week essentially unchanged. The only notable movement was on Tuesday and Friday. The spot price of West Texas Intermediate declined a little over a buck a barrel Tuesday on news of contraction in euro-area manufacturing. Crude rose a little under a dollar a barrel on Friday on belief that the weak jobs report will result in additional stimulus by the Fed.
Net for the week, the spot price for West Texas Intermediate edged down 5 cents per barrel to settle at $96.42.
Overall, the economic news was mixed and suggested a continuation of a mild recovery. But the employment situation numbers took the spotlight at the end of the week and the anemic numbers indicated that hiring is lagging just about every facet of the recovery. But the bad news was good news in terms of markets increasing their hope for further Fed easing.
 Firms are increasingly averse to hiring according to the latest employment situation. And the odds of some kind of Fed easing at the September FOMC just went up as the employment situation for August was not pretty.
Payroll jobs growth was anemic even though the unemployment rate dipped. The unemployment rate slipped to 8.1 percent from 8.3 percent in July due to a sharp drop in the labor force—a negative reason for the dip.
Payroll jobs in August advanced a mere 96,000, following gains of 141,000 in July (originally 163,000) and 45,000 in June (previous estimate of 64,000). The net revisions for June and July were down 41,000. Analysts projected a 125,000 gain for August.
 Private payrolls increased 103,000 in August after gaining 162,000 the prior month. The consensus called for a 134,000 boost.
Private service-providing jobs rose 119,000 in August after a 139,000 increase the prior month. In August, notable gains were in food services and drinking places (up 28,000), in professional and technical services (up 27,000), and in health care (up 17,000).
The public sector contracted but at a slower pace. Government jobs fell 7,000 in August, compared to a 21,000 drop in July. The government sector has been tugging down on overall employment gains since mid-2010 when temporary Census workers were laid off and state and local governments have had extended shortfalls in revenues.
 Turning to wage inflation, average hourly earnings were flat after a 0.1 percent rise in July. Expectations were for a 0.2 percent rise. The average workweek was unchanged at 34.4 hours. Expectations were for 34.5 hours.
Looking ahead from the payroll data, the news is not good for either industrial production or personal income. Manufacturing hours for production workers declined 0.4 percent, indicating that the manufacturing component of industrial production will be down for August. Aggregate earnings were unchanged in August, suggesting a soft wages & salaries component in personal income.
Looking at the detail behind the dip in the unemployment rate, household employment declined 119,000 but was outstripped by a 368,000 drop in the labor force as many workers quit looking for work due to adverse labor market conditions.
The August employment situation report was very disappointing. One can choose the reason for the reluctance of businesses to hire currently (soft demand or possibly political and economic uncertainty), but they clearly are reluctant. As a result, the Fed will be under increased pressure to implement some new monetary easing. However, the general consensus is that with liquidity already flush, additional monetary easing will have minimal impact alone from new fiscal stimulus.
 The latest motor vehicle sales numbers suggest that the consumer sector is improving. Incentives helped to give a sizable 3.1 percent monthly boost to vehicle sales in August, following a 2.0 percent dip in July. Sales for the month were an annualized 14.5 million units which matched February as the best rate of the year. August's gain was centered in domestic cars and domestic trucks where strength offsets slight monthly weakness on the import side.
Though the headline gain points to strength for the motor vehicle component of the August retail sales report, vehicle sales data should come with a warning to readers. Not all unit sales go to consumers as some go to businesses. Nonetheless, the latest numbers point to a combination of lift to durables PCEs and to business equipment spending in August and, in turn, support for the initial estimate for third quarter GDP.
 Manufacturing continues to show signs of slowing or even mild contraction. The latest national surveys showed weakening in August with the key difference being whether numbers placed just above or just below breakeven.
The Markit Economics survey indicates modestly positive growth while the ISM survey points to modest contraction in August.
The final manufacturing PMI from Markit Economics was revised 4 tenths lower from the flash estimate to a 51.5 level that indicates modest monthly growth in business activity at just about the same level of growth as July's 51.4 reading. But unfortunately, the downward revision to the final reading in August was centered in new orders which were at a final 51.9 which is 7 tenths slower than the flash reading. New orders for this report are showing the slowest rate of monthly growth of the recovery.
Output was also downwardly revised, to 51.9 which is 5 tenths slower than the flash reading. Other readings show little change.
 The ISM manufacturing report for August was more negative. The ISM composite index slipped further into negative territory, posting at 49.6 in August versus 49.8 in July. A big part of the drop was a decline in the production index to 47.2 from 51.3 in July. Also, the new orders index dipped to 47.1 in August from 48.0 the prior month. New export orders were definitely part of the problem, at 47.0 for what is also the third straight month of contraction. Manufacturers, as they wait for new orders to return, are increasingly drawing down their backlogs which were at 42.5 for the fifth straight month of contraction.
Plant managers are still a little optimistic as one plus in the latest report was a continued gain for the employment index at 51.6 though lower than 52.0 in July. Yet the August employment reading was nevertheless the slowest in 3 years and new hiring will not last unless new orders pick up soon.
 Construction spending was unexpectedly weak in July and broad based. But there were some positive signs in the detail. Construction spending fell back 0.9 percent in July, following a 0.4 percent gain in June and 1.7 percent boost in May.
The drop in July was led by private residential outlays which declined 1.6 percent after a 2.4 percent boost in June. But private residential was led down by spending on existing structures which plunged 5.5 percent, following gains of 1.4 percent in June and 4.6 percent in May. New one-family structures actually rose 1.5 percent, following a 3.1 percent boost the prior month. New multifamily structures advanced 2.8 percent after a 3.5 percent increase in June. So, the recent uptrend in housing starts was not misleading. Spending on new private residential structures continues to improve.
Turning to other sectors, private nonresidential outlays declined 0.9 percent in July, following a 0.9 percent drop in June. Public outlays decreased 0.4 percent after no change in June.
On a year-ago basis, overall construction stood posted at 9.3 percent in July, compared to 7.0 percent the month before.
The latest construction outlays report appears quite negative at the headline level. And private nonresidential spending and public outlays clearly are on soft trends. But private residential spending still is on an underlying uptrend once the volatile subcomponent on spending on existing structures is excluded.
 While manufacturing appears to be softening, the rest of the economy appears to be gaining a little strength. The ISM's non-manufacturing report showed wide strength in August with the composite index up 1.1 points to 53.7 for the best monthly rate of general growth since May. The rise in the composite was led by a 4-1/2 point surge in employment to 53.8 which was the best reading since April. A slowing in delivery times, which is a sign of rising demand, also boosted the composite.
The other two components of the composite—new orders and business activity—also showed strength though the rate of monthly growth for both slowed slightly. New orders slowed 6 tenths to 53.7 which is still very respectable. Business activity slowed 1.6 points from outsized strength in July to a 55.6 level that is very solid.
A slight rise in backlogs and an acceleration in new export orders round out the report's good news.
The week’s numbers for indicators were mixed though the key employment report clearly was far below expectations, indicating a very soft labor market. This may spur the Fed to act on additional monetary easing but few think additional easing by the Fed will make much difference.
The consumer sector has shown recent improvement—other than for employment. The week starts off and ends with consumer updates on consumer credit and with Friday’s retail sales and consumer sentiment. Europe is largely in recession and Asia is slowing, so Tuesday’s international trade report will provide news on the latest export numbers which are key to manufacturers. Higher food and energy costs have been threatening inflation numbers and this week’s PPI and CPI reports will provide updates. Finally, the Fed meets a day later than usual and traders will be closely anticipating some form of additional monetary easing when the Fed releases its statement just after noon on Thursday. Chairman Bernanke will be explaining the forecasts and any policy move at 2:15 p.m. ET Thursday.
Consumer credit outstanding rose $6.5 billion in June, following a $16.7 billion jump the month before. The latest gain was led by non-revolving credit, gaining $10.2 billion in June after a $9.2 billion rise in May. Non-revolving credit is mostly for motor vehicle purchases and student loans. As unit new motor vehicle sales increased 3.1 percent in June, some of the boost likely was auto related. But in recent months, non-revolving credit has been lifted by strong gains in student loans. The revolving credit component was not good in June, declining $3.7 billion but following a $7.5 billion boost in May. The June dip largely reflected soft retail sales for the month. Looking ahead, retail sales were strong in July but motor vehicles slipped. So there is support for a gain in revolving credit in July but nonrevolving credit may be soft unless student loans add lift.
Consumer credit Consensus Forecast for July 12: +$9.8 billion
Range: +$5.0 billion to +$14.9 billion
The NFIB Small Business Optimism Index slipped 0.2 points in July to 91.2. The index has averaged 90.0 during the recovery. Weak components in the month included earnings trends and sales expectations with strength appearing in employment and general expectations for the economy.
NFIB Small Business Optimism Index Consensus Forecast for August 12: 91.5
Range: 90.0 to 93.0
The U.S. international trade gap in June shrank, again thanks in part to lower oil prices but also from a general import dip. The trade deficit decreased to $42.9 billion from $48.0 billion in May. Exports advanced 0.9 percent, following a 0.3 percent rise in May. Imports shrank 1.5 percent after a 0.8 percent decrease in May. Surprisingly, the narrowing in the trade gap was led by the non-petroleum goods gap which shrank to $34.4 billion from $37.5 billion in May. The petroleum deficit also decreased—to $22.5 billion in June from $24.8 billion the prior month. The services surplus slipped to $14.6 billion from $14.9 billion.
International trade balance Consensus Forecast for July 12: -$44.3 billion
Range: -$47.1 billion to -$39.7 billion
Import prices fell 0.6 percent in July for the fourth straight decline and the third straight sharp decline. And contraction was not isolated to swings in oil prices as import prices excluding petroleum fell 0.3 percent, matching the drop in May, and following a 0.1 percent dip in April. A look at finished goods also points to contraction. Import prices for consumer goods were down 0.1 percent in both June and May. Import prices for capital goods were down 0.1 percent for the third negative reading in 4 months. A shift over to the export side showed a rebound of 0.5 percent, following a 1.7 percent drop in May. The rebound was due to a 6.4 percent monthly surge in agricultural prices. Nonagricultural prices dropped 0.3 percent in June.
Import prices Consensus Forecast for August 12: +1.5 percent
Range: +0.4 to +1.9 percent
Export prices Consensus Forecast for August 12: +0.5 percent
Range: 0.0 to +0.9 percent
Wholesale inventories in June dipped 0.2 percent. But wholesale sales fell 1.4 percent. This mismatch put the inventory-to-sales ratio for the sector at 1.20 which was well up from 1.18 in May and was the highest reading since December 2009. The build in wholesale inventories was centered in durable components including hardware, machinery, and computers.
Wholesale inventories Consensus Forecast for July 12: +0.4 percent
Range: 0.0 to +0.8 percent
Initial jobless claims fell sizably in the September 1 week to 365,000 for the lowest level in four weeks. The weekly decline of 12,000 was the best in six weeks. A slight offset was a 3,000 upward revision to the prior week. Another offset to the latest week's improvement was upward movement in the 4-week average to 371,250. This was the highest level in seven weeks and was slightly higher than the month-ago trend.
Jobless Claims Consensus Forecast for 9/8/12: 370,000
Range: 365,000 to 380,000
The producer price index rose a sizable 0.3 percent in July after a 0.1 percent rise in June and 1.0 percent decline in May. Food prices at the producer level rose 0.5 percent for a second straight month. Over half of the July increase can be traced to prices for beef and veal, which climbed 3.8 percent. These have been affected by higher feed prices (corn) due to short supply created by drought conditions in the corn belt. Energy prices in July headed the other way for now, down 0.4 percent in the month to extend a run of declines that goes back to March. The core rate, which excludes both food and energy, rose 0.4 percent after a 0.2 percent increase in June. The latest reading was the steepest rise since January. Vehicles showed a steep increase as did tobacco and pharmaceuticals.
PPI Consensus Forecast for August 12: +1.4 percent
Range: +0.2 to +1.8 percent
PPI ex food & energy Consensus Forecast for August 12: +0.2 percent
Range: 0.0 to +0.2 percent
The FOMC announcement at 12:30 p.m. ET for the September 12-13 FOMC policy meeting is expected to leave the fed funds target unchanged at a range of zero to 0.25 percent (yes, the meeting is Wednesday/Thursday instead of Tuesday/Wednesday). However, many traders and analysts believe the Fed will extend guidance beyond 2014. There are mixed views on whether there will be an announcement of additional quantitative easing. Also, the Fed will release its quarterly forecast between the announcement and the chairman’s press conference, generally about 2:00 p.m. ET.
FOMC Consensus Forecast for 9/13/12 policy vote on fed funds target range: unchanged at a range of zero to 0.25 percent
Chairman press conference after the FOMC meeting statement is scheduled for 2:15 p.m. ET. Fed Chairman Ben Bernanke conducts a press conference after FOMC meetings in which participants present their quarterly economic forecasts. Bernanke is expected to comment on the forecast and take Q&A. There likely will be numerous questions on any actual new policy moves from the September 12-13 meeting or potential moves in the near term
The U.S. Treasury monthly budget report showed a deficit of $69.6 billion for the lowest July deficit since 2007. Calendar effects did move about $12 billion of spending into June and boosted receipts for July by about $6 billion. Ten months into the fiscal year, the Treasury's deficit, at $973.8 billion, was 11.5 percent smaller than the prior year. Looking ahead, the month of August typically shows a deficit for the month. Over the past 10 years, the average deficit for the month of August has been $79.1 billion and $97.5 billion over the past 5 years. The August 2011 deficit came in at $134.1 billion.
Treasury Statement Consensus Forecast for August 12: -$160.0 billion
Range: -$175.0 billion to -$155.0 billion.
The consumer price index in July came in flat, following no change in June. Excluding food and energy, the CPI increased a modest 0.1 percent, following a 0.2 percent gain in June. Headline softness primarily got help from the energy component. By major components, energy fell 0.3 percent in July after declining 1.4 percent the month before. Gasoline actually rose 0.3 percent, following a 2.0 percent decrease in June. Declines were seen in electricity, piped gas, and heating oil. Food prices edged up 0.1 percent after gaining 0.2 percent in June.
The core rise of 0.1 percent in July ended a streak of four consecutive 0.2 percent increases. Deceleration was largely due to declines in costs for airfare, used cars & trucks, new vehicles, and transportation services. Also, apparel and medical care inflation slowed.
CPI Consensus Forecast for August 12: +0.6 percent
Range: +0.2 to +0.9 percent
CPI ex food & energy Consensus Forecast for August 12: +0.2 percent
Range: +0.1 to +0.2 percent
Retail sales in July rose 0.8 percent for the strongest rise since February with ex-auto sales also up 0.8 percent for, again, the best showing since February. Ex-auto ex-gas, the gain was 0.9 percent for the best showing since January. All major components showed gains including motor vehicles, general merchandise, health & personal care, furniture, and restaurants. Clothing also shows a significant gain, one that points to strength for the back-to-school season.
Retail sales Consensus Forecast for August 12: +0.8 percent
Range: +0.3 to +1.5 percent
Retail sales excluding motor vehicles Consensus Forecast for August 12: +0.8 percent
Range: +0.3 to +1.5 percent
Less motor vehicles & gasoline Consensus Forecast for August 12: +0.4 percent
Range: +0.3 to +0.8 percent
Industrial production jumped 0.6 percent in July after a 0.1 percent rise in June. By major components, manufacturing advanced 0.5 percent, following an increase of 0.5 percent in June. Motor vehicles production supported the manufacturing gain, increasing 3.3 percent in July, following a 1.9 percent rebound in June. Manufacturing excluding motor vehicles posted a 0.2 percent rise, following a 0.4 percent boost the prior month. In July, mining output advanced 1.2 percent, following a 0.5 percent increase in June. Utilities output rebounded 1.3 percent after declining 3.3 percent the prior month. Overall capacity utilization rose to 79.3 percent from 78.9 percent in June. Looking ahead, manufacturing hours for production workers declined 0.4 percent, indicating that the manufacturing component of industrial production will be down for August.
Industrial production Consensus Forecast for August 12: -0.1 percent
Range: -1.0 to +0.3 percent
Manufacturing production component Consensus Forecast for August 12: -0.2 percent
Range: -0.5 to +0.2 percent
Capacity utilization Consensus Forecast for August 12: 79.2 percent
Range: 78.6 to 79.5 percent
The Reuter's/University of Michigan's consumer sentiment index for the final August reading rose 7 tenths from mid-month to close August at 74.3. This was up a solid 2 full points from the final July reading. Importantly, the gain was spread evenly between the first half of the month and the second half which points to a steady slope of improvement going into September. The gain was concentrated entirely in the assessment of current conditions which improved to 88.7 from 87.6 at mid-month and 82.7 for July. Expectations, the other component of the headline index, rose 6 tenths in the second half of the month, to 65.1 versus 64.5, but was down slightly from July's 65.6.
Consumer sentiment Consensus Forecast for preliminary August 12: 73.5
Range: 73.0 to 75.0
Business inventories for June rose 0.1 percent while business sales plunged 1.1 percent which is the steepest drop in nearly 3-1/2 years. The mismatch between the change in inventories and the change in sales drove the inventory-to-sales ratio from 1.27 in May to 1.29 which is the highest reading in 2-1/2 years. Components in June showed a 0.1 percent inventory build for manufacturers, a 0.6 percent build for retailers and a 0.1 percent gain ex-auto, and a 0.2 draw for wholesalers. Together these numbers are modest and indicate that businesses are responding to weakness in demand, but the weakness in demand, at least in June, turned out to be severe.
Business inventories Consensus Forecast for July 12: +0.5 percent
Range: +0.1 to +0.6 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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