The employment situation is the mother of all indicators since it tends to set the tone for the month. The jobless rate is about in line with expectations, but even after revisions, nonfarm payrolls turned out weaker than expected for the quarter. The employment report suggests that personal income growth will be anemic and industrial production will drop again. The hours worked figures point to a drop in second quarter GDP growth. But other economic reports are not showing such a dire picture. For instance, motor vehicle sales rose in June. How can we have a recession when consumer spending accelerates?

The employment report is likely to generate a buzz on another interest rate cut by the Federal Reserve this summer. The data alone may not be sufficient for an inter-meeting reduction in the funds rate, but bond and stock investors may start pricing in a 25 or 50 basis point cut for the mid-August meeting.