A Spring Back for Jobs

The death of the job market was greatly exaggerated. Cassandra’s were out in force after the weak first quarter, but to the relief of economists, the May employment report showed a much hoped for spring back in the labor market. The Bureau of Labor Statistics said 280,000 new jobs were added last month, exceeding the consensus estimate of 220,000. The previous two months were revised higher by a total of 32,000. Over the past six months, the economy has added an average of 236,000 jobs per month, a solid gain though lower than last year's monthly average of about 260,000. The unemployment rate ticked up to 5.5 percent for the right reason-like in April, more people joined the labor force and while a number of them landed jobs, some were not able to do so in May. [As a point of reference, in the three years prior to the recession, the unemployment rate averaged 4.8 percent, which is below the post World War II average of 5.8 percent.]

The labor force participation rate (the number of Americans in the labor force or actively seeking employment) ticked up to 62.9 percent, the high end of the narrow range of 62.7 to 62.9 percent seen for the past year. There was also a 268,000-drop in discouraged workers in May to 1.9 million, the lowest number since 2008.

As more candidates snag those coveted jobs, economists say that wage gains are not likely to be far behind. In this report, average earnings increased at a better than expected pace month over month and are now up 2.3 percent from a year ago, the biggest increase since the summer of 2013. Before you pop the champagne, it’s worth considering that 2.3 percent is just a touch ahead of the pokey pace of the past few years, is still below the 3 percent growth seen in the last expansion and not to rub salt into the wound, but increases of more than 4 percent were common in past expansions.

Those wage gains are elusive because there is still significant slack in the labor market. Slack can come in many forms: those 1.9 million discouraged workers; the 6.7 million people working part time, who want a full-time job; and the 2.5 million long-term unemployed. As a report from the Atlanta Fed recently noted: “There is intense competition among job seekers for available job opportunities. And within many jobs, the demand for more hours has been greater than the supply of hours offered by employers.”

Productivity, or lack thereof, is also creating a headwind for wage growth. First quarter productivity decreased at a 3.1 percent seasonally adjusted annual rate and has now fallen for two consecutive quarters, the first time that has happened since 2006. “The most important factor determining living standards is productivity growth, defined as increases in how much can be produced in an hour of work,” Fed Chairwoman Janet Yellen said in a speech last month. “Over time, sustained increases in productivity are necessary to support rising incomes.”

Finally, economists note that because inflation is running low and the hangover form the recession remains indelible, workers have not demanded higher wages. But the tide could be turning, as the May jobs report showed a little spring in the labor market's step!

MARKETS: Despite fears than an M&A boom is fueling high valuations in the tech sector and pushing stock indexes to unsustainable levels, the action this week was in the bond market. Benchmark government bond yields in Europe, Japan and the US increased to their highest levels of the year. After the jobs report confirmed strengthening in the US economy, the price of the US 10-year dropped and the yield rose to 2.4 percent, the highest closing level since October 6^th. The latest action prompts the question: Is the thirty-year bull market in bonds finally coming to a close? Stay tuned…

• DJIA: 17,849, down 0.9% on week, up 0.15% YTD (3^rd consecutive weekly loss)
• S&P 500: 2092, down 0.7% on week, up 1.65% YTD
• NASDAQ: 5,068 down 0.03% on week, up 7% YTD
• Russell 2000: 1261, up 1.1% on week, up 4.7% YTD
• 10-Year Treasury yield: 2.4% (from 2.1% a week ago, the biggest weekly rise since the June 2013 “taper tantrum”)
• July Crude: $59.13, down 1.9% on week (first weekly loss since March)
• August Gold: $1168.10, down 1.8% on week
• AAA Nat'l avg. for gallon of reg. gas: $2.75 (from $2.73 wk ago, $3.66 a year ago)

THE WEEK AHEAD:

Mon 6/8:

Apple developer conference: Company expected to launch a streaming music service

Tues 6/9:

9:00 NFIB Small Business Optimism Index

10:00 Job Openings and Labor Turnover Survey (JOLTS)

Weds 6/10:

Thurs 6/11:

8:30 Retail Sales

8:30 Import/Export Prices

Fri 6/12:

8:30 Producer Price Index

9:55 U Michigan Consumer Sentiment

El-Erian: “Income Inequality is Horrific”

There is nothing better than an hour spent talking to Mohamed El-Erian at the annual LinkedIn Finance Connect event. El-Erian has a unique ability to break down hardcore economic concepts into digestible, easy-to-understand analogies. For example, when I asked him about his prediction about worldwide growth this year, he said, “imagine if you were a elementary schoolteacher and I told you that overall, your classroom would be better this year than it was last year. Unfortunately, that slightly better classroom that still has troublemakers." Those rambunctious troublemakers include: Russia/Ukraine, Greece, Brazil, Venezuela, Nigeria – any one of them could disrupt global economy and threaten the progress of the “limping along” economies of Japan and Europe, as well as the improving U.S. economy. One bright spot for El-Erian is China, which is clearly downshifting from 10 percent growth over the past three decades, to a more sustainable 6-7 percent rate. Although many have predicted looming disaster for the world’s second largest economy, El-Erian believes that China will be able to make a soft landing.

He’s less sanguine about Greece, where the probability of three possible outcomes is:

• 45% Greece and Eurozone officials muddle along
• 50% Greece leaves Eurozone (“Grexit”) and a massive dislocation in financial markets ensues
• 5% Greece wades through and comes out better

As Greece teeters on the edge of disaster, other European countries (Germany, Switzerland, Sweden, Denmark) are seen as bastions of safety. In fact, some investors are actually paying countries to hold their money. Mohamed says that there are two types of investors, who buy bonds with negative interest rates: (1) Those who are willing to pay up to ensure that their money is safe and (2) those who are betting that negative returns get more negative. Although negative interest rates have persisted longer than El-Erian though they would, he does not believe that the situation will last.

The US economy should continue to expand this year at a 2.5 percent annualized rate and El-Erian is hopeful that monthly job creation will average over 200,000. The combination will prompt the Fed to increase interest rates at its September policy meeting, but El-Erian noted that this is likely to be “the loosest tightening in history,” so it will take a considerable period of time before conditions look normal again.

As far as the labor market is concerned, while job creation should pick up, stagnant wages are limiting growth. “Income inequality is horrific,” and while this is a decades long trend, in the six years since the official end of the recession, only a small percentage of Americans seem to be back or better off than they were before the recession. El-Erian said, “100 percent of the total income growth during this recovery has gone to the top 5 percent of earners.”

While some companies are actually doing more to help narrow the income gap, El-Erian would like to see an overhaul of the corporate and personal tax systems. On the individual side, lawmakers should consider raising the minimum wage and eliminating some of the benefits, which wealthy taxpayers enjoy, like not paying tax on carried interest and the mortgage interest deduction.

[The April jobs report did not show much progress on the wage front. While the job market recovered in April after getting roughed up in March, the Bureau of Labor Statistics said 223,000 new jobs were added last month and the unemployment rate ticked down to 5.4 percent, the lowest level since May 2008. This time around, the unemployment rate slid for the right reason: 166,000 additional workers entered the labor force and snagged jobs. Average earnings were up 2.2 percent from a year ago, up from 2.1 percent in March - a tiny improvement, but a far cry from 3 percent annualized rate seen during the last expansion.]

Last year, when I interviewed El-Erian, he said that the US economy was approaching a “T-Junction”, where it could veer in one of two directions: (1) growth accelerates, justifying current stock prices; or (2), growth remains sub-par, central bank policy loses effectiveness and stocks tank. This year, he said that the US is moving up the neck of this critical junction and continues to believe that the odds are 50-50 for either outcome. With even chances, the disconnect between markets and economic reality is the biggest risk facing investors and according to El-Erian, you may want to hold a little more cash in your portfolio, just in case the more negative scenario plays out.

MARKETS: In a volatile week, the bulls won out and pushed indexes within striking distance of all-time highs.

• DJIA: 18,191, up 0.9% on week, up 2% YTD
• S&P 500: 2116, up 0.4% on week, up 2.8% YTD
• NASDAQ: 5,003 down 0.04% on week, up 5.6% YTD
• Russell 2000: 1234, up 0.5% on week, up 2.5% YTD
• 10-Year Treasury yield: 2.15% (from 2.1% a week ago)
• June Crude: $59.39, up 0.4% on week
• June Gold: $1188.90, up 1.2% on week
• AAA Nat'l avg for gallon of regular Gas: $2.66 (from $2.61 week ago, $3.66 a year ago)

THE WEEK AHEAD: With earnings season mostly winding down, investors are turn their attention oversees, where once again, problems in Greece and Russia/Ukraine pose risks.

Mon 5/11:

Tues 5/2:

Greece is due to make a 750M euro payment to IMF/Euro Finance Ministers meet

9:00 NFIB Small Business Optimism

10:00 Job Openings and Labor Turnover Survey

11:00 Household Saving and Debt Report

Weds 5/13:

Macy’s

8:30 Retail Sales

Thurs 5/14:

Kohl’s, Nordstrom

8:30 Producer Prices

Fri 5/15:

8:30 Empire State Manufacturing

9:15 Industrial Production

10:00 Consumer Sentiment

Pay Raises Ahead?

Nearly six years after the official end of the recession, something exciting is about to happen: Americans are likely to FINALLY get a raise! Government data (the Employment Cost Index or “ECI”) showed that compensation in the first quarter increased by 2.6 percent from a year ago, up from the 2.2 percent gain in the previous quarter and the fastest pace since Q4 2008. The private sector did even better, seeing an annual growth rate of 2.8 percent, the best year over year pay gain since Q3 2008. A year ago, the rise in private sector wages and salaries was only 1.7 percent, so while growth rates are still modest by historical standards, this report demonstrates good progress and is a sign of potentially more robust increases later this year. Joel Naroff of Naroff Economic Advisors predicts, “Within a quarter or two at the most, we should be back above 3 percent,” which is just about average for an expansion.

How can we square this upbeat information with the monthly jobs report category of “average hourly earnings”, which showed annual growth of just 2.1 percent in Q1 (and for the entire recovery)? Greg Ip of the Wall Street Journal notes, “The divergence may be explained by the fact that the quarterly figures include commissions and other performance-based pay, which rose sharply in the first quarter, and may not be repeated.” That may be true, but it should also be noted that the Fed has traditionally put more weight on the employment cost index, since it tracks the same jobs over time and adjusts for the changing mix of jobs in the economy. If Janet thinks ECI is the better gauge to use, then we should too.

Other indicators have enhanced the case for future pay raises: weekly jobless claims are hovering at 15-year lows; ISM Service sector indicators are strengthening; and a variety of big companies, including McDonalds, Wal-Mart, Target, Cheesecake Factory and Aetna, have all announced an increase in pay to lower wage workers.

We’ll learn more about the state of the nation’s labor market this week, when the government releases the April employment update. Economists are hopeful that the weak March report, where just 126,000 positions were created, was a one-off event, rather than a more worrisome trend that is gripping the nation. The consensus estimate is that 220,000 new jobs were created and for the unemployment rate to edge down by a tenth of a percent to 5.4 percent.

Happy Anniversary, Greek Bailout! Time sure does fly, when you bail out an indebted nation. It has been FIVE YEARS since Europe and the International Monetary Fund first agreed to bail out Greece (May 2, 2010). Eurozone officials are busy trying to hammer out yet another debt restructuring with Greece, which once again faces a summer default without a deal.

MARKETS: That thud you heard this week was the sound of plummeting social media stocks. Twitter, LinkedIn and Yelp all tumbled by more than 20 percent on the week, after weaker than expected earnings reports and dim prospects for the rest of the year. Social media stocks have been on a massive run and even with these three misfires, the social media index (SOCL) is up over 10 percent this year, 3.5 percent better than the NASDAQ Composite.

• DJIA: 18,024, down 0.3% on week, up 1.1% YTD
• S&P 500: 2108, down 0.4% on week, up 2.4% YTD
• NASDAQ: 5,005 down 1.7% on week, up 5.7% YTD
• Russell 2000: 1267, down 3.1% on week, up 2% YTD
• 10-Year Treasury yield: 2.12% (from 1.92% a week ago)
• June Crude: $59.15, up 3.5% on week (up 25% in April, biggest monthly gain since 5/09)
• June Gold: $1174.50, down 0.03% on week
• AAA Nat'l avg for gallon of regular Gas: $2.60 (from $2.51 week ago, $3.69 a year ago)

THE WEEK AHEAD:

Mon 5/4:

Cablevision, Comcast

10:00 Factory Orders

Tues 5/5:

Zillow

8:30 International Trade

10:00 ISM Non-Manufacturing Index

Weds 5/6:

MetLife, Prudential, Whole Foods

8:15 ADP Private Sector Jobs

8:30 Productivity

Thurs 5/7: UK Election

Zynga

3:00 Consumer Credit

Fri 5/8:

AOL

8:30 April Employment Report

Wage Watch, NASDAQ 5000 and Sock Puppets

After the stronger than expected January employment report, economists and investors enter the new month anticipating another solid, though not quite as good February reading on jobs. The dual headwinds of bad weather and the West Coast port labor dispute likely kept job creation to 230,000, below the average monthly gain of 336,000 over the preceding three months. The retreat does not auger bad times, rather a return to more sustainable levels. While job creation is important, there will likely be more attention focused on hourly wages. After stagnating throughout the recovery, average hourly wages jumped by 0.5 percent in January, the best month over month increase since November 2008. With prices remaining low, wages do not need to rise too much to amount to a decent bump in a worker’s take-home. In the past 12 months ending January, real (after inflation) hourly wages were up 2.4 percent and that was before Wal-Mart and Target announced that each would increase their minimum pay to employees.

With regard to those much-ballyhooed increases, they are good news, but let’s take them for what they are: small increases in a sector that has the lowest hourly rate of pay. According to the most recent government data, the average hourly retail worker in a non-supervisory role earns $14.65, but that includes people who work at auto dealers and other outlets that pay more than traditional retailers. The average hourly pay is $9.93 for cashiers and low-level retail sales staff, according to Hay Group's survey of 140 retailers with annual sales of $500 million. The same goes for the food service industry, where wages increased at an annualized pace of 3 percent in the last half of 2014. Nonsupervisory food-service employees earned $11.11 an hour last year, compared to the national mean of $20.61.

What economists and employees are looking for in the upcoming jobs reports this year is a more broad-based wage increase that lifts American workers out of the recession/recovery doldrums. With the economy percolating at a decent pace, there is finally hope that those elusive gains should not be too far behind.

Beyond the jobs report, investors will be on NASDAQ 5000 watch. It has been 15 years since the NASDAQ composite first crossed the magical mark and last week, it came within 12 points, before slipping back. It will be historic to reclaim the level, but (here comes the buzz-kill alert) if you adjust for inflation (about 2.2 percent over the last 15 years), NASDAQ 5000 is actually NASDAQ 7000 (6,941 to be exact).

Of course the poster child for the dot-com boom and bust was Pets.com and its hysterical sock puppet. (Hat tip to CBS Producer Kim, who found this great montage!) The company was founded in 1998 and just one year later, the Pets.com mascot got its own balloon in the Macy's Thanksgiving Day and then appeared in a Super Bowl spot in January 2000. Pets.com raised $82.5 million in an initial public offering in February, rose to a high of $14 and nine months later the company melted down and everyone’s favorite sock puppet went to doggy heaven.

MARKETS: It was a strong month for stocks, with the S&P 500 tallying its best monthly percentage gain since Oct 2011.

• DJIA: 18,132, down 0.04% on week, up 5.6% on month, up 1.7% YTD
• S&P 500: 2104, down 0.3% on week, up 5.5% on month, up 2.2% YTD
• NASDAQ: 4963 up 0.2% on week, up 7.1% on month, up 4.8% YTD
• Russell 2000: 1233, up 0.1% on week, up 5.8% on month, up 2.4% YTD
• 10-Year Treasury yield: 2.00% (from 2.14% a week ago)
• April Crude Oil: $49.76, down 2.1% on week, up 3.2% on month
• April Gold: $1,213.10, up 0.7% on week, down 5% on month
• AAA Nat'l avg for gallon of regular Gas: $2.40 (from $2.28 week ago, $3.45 a year ago)

THE WEEK AHEAD:

Mon 3/2:

8:30 Personal Income and Spending

9:45 PMI Manufacturing Index

10:00 ISM Manufacturing Index

10:00 Construction Spending

Tues 3/3:

Best Buy

Motor Vehicle Sales

Weds 3/4:

Abercrombie & Fitch

8:15 ADP Private Sector Jobs Report

10:00 ISM Non-Manufacturing Index

2:00 Fed Beige Book

Thurs 3/5:

ECB outlines bond buying program

8:30 Productivity

10:00 Factory Orders

Fri 3/6:

Staples

8:30 February Employment Report

3:00 Consumer Credit

Will OPEC Decision Halt the Santa Claus Rally?

While you were enjoying your Thanksgiving meal, the 12 members of the Organization of the Petroleum Exporting Countries (OPEC) announced that the cartel would hold its output target at 30 million barrels per day. The decision caused a steep sell off in Brent crude oil (the global benchmark) on the ICE Futures Europe. When U.S. markets opened on Friday, investors dumped West Texas Intermediate crude on the New York Mercantile Exchange and futures plunged 10.2 percent to $66.15 a barrel, the lowest settlement since September 2009. Both oil benchmarks are experiencing their worst losing streaks since the financial crisis in 2008, with 18 percent losses for the month of November. As previously mentioned in this space (Peak Oil Pukes), sinking oil and gas prices should help consumers, but the savings has not yet created overall cheer. Last week, the Conference Board said that its consumer confidence index dropped to a four month low in November. But Capital Economics notes “this fall needs to be taken into context alongside the sharp rise earlier in the year.” In fact, confidence is still close to seven-year highs.

What has been driving confidence this year has been the steady improvement in the jobs situation. Through October, the economy has added 2.225 million private sector jobs and 2.285 million total jobs in 2014. The November jobs report, which is due this Friday, is expected to show that the economy added 220,000 jobs. If that happens, 2014 will be the best year for private employment since 1999, according to Calculated Risk.

The unemployment rate is expected to remain at 5.8 percent, which puts it close to the Federal Reserve’s estimate of the longer-term, normal rate of unemployment of 5.2 percent to 5.5 percent. But with wages still up only 2 percent year over year, the central bank is likely to keep interest rates at 0 to 0.25 percent until next year.

Despite lots of energy and attention, the initial reports from retailers about the big holiday weekend may tell us less about the economy than the jobs report. Analysis from the New York Times found that while the holiday season is important for retailers, it “matters only a little bit” for the overall economy. The reason is clear: consumers would spend a certain amount of money in any two months. When stripping out the normal expenditures, “for the last two months of the year, Americans are on track to spend $106 billion more than they would if these were any old months.” Not that you would sneeze at $106 billion, but compared to the $17.6 trillion US economy, it’s not nearly as important as the elusive 3 percent increase in wages that we have seen in previous expansions.

MARKETS: Will investors be treated to a “Santa Claus Rally”? The old Wall Street chestnut predicts stocks do well during the period just after Thanksgiving through the end of the year. Over the past five years, the S&P 500 has gained an average of 2.5 percent during December. But OPEC's decision to maintain current production levels could weigh on energy stock prices, curtail energy company profits and limit the near-term upside in markets.

• DJIA: 17,828, up 0.1% on week, up 2.5% on month, up 7.6% YTD
• S&P 500: 2067, up 0.2% on week, up 2.5% on month, up 11.9% YTD
• NASDAQ: 4791, up 1.7% on week, up 3.5% on month, up 14.7% YTD
• Russell 2000: 1173, up 0.01% on week, up 2% on month, up 0.8% YTD
• 10-Year Treasury yield: 2.17% (from 2.31% a week ago)
• January Crude Oil: $66.15, down 13.5% on the week, down 18% on month
• December Gold: $1175.50, down 1.8% on the week
• AAA Nat'l average price for gallon of regular Gas: $2.78 (from $3.28 a year ago)

 THE WEEK AHEAD:

Mon 12/1:

Cyber Monday

9:45 PMI Manufacturing

10:00 ISM Manufacturing

Tues 12/2:

Motor Vehicle Sales (2014 is on pace to be the best year since 2006)

10:00 Construction Spending

Weds 12/3:

8:15 ADP Private Sector Employment Report

8:30 Productivity

10:00 ISM Non Manufacturing

2:00 Fed Beige Book

Thurs 12/4:

8:30 Weekly Jobless Claims

Fri 12/5:

8:30 November Employment Report

10:00 Factory Orders

3:00 Consumer Credit

Tepid Wage Growth Restrains Economy

The U.S. labor market continued to improve in August, though not as much as analysts’ had predicted. Employers created 142,000 positions and the unemployment rate edged down to 6.1 percent, because a bunch of people left the labor force. Before you start worrying the recovery is falling apart, consider this: But for a lousy January (when severe weather pervaded much of the country) and this jobs report, which may have been impacted by unusual events in auto manufacturing and retailing, this year has actually been a very good one for job creation. There have been 1.732 million jobs added in 2014, or an average of 215,375 per month. In the last 15 years, the U.S. has seen average monthly job gains of at least 200,000 in just one year (2005), so let’s not throw in the towel just yet. And taking a longer view, private-sector payrolls have grown by more than 10 million since the jobs recovery began in March 2010. According to the WSJ, “employers outside the government have added jobs for 54 straight months—the longest such streak on records back to 1939”.

Still, there are many problems that persist in the labor market, like 3 million people out of work for more than six months and a historically low participation rate, to name a couple. But perhaps the most vexing for the economy is that wage growth remains stuck at around two percent from a year ago. As a frame of reference, Americans usually see pay increases of about 3 percent during expansions, so the recent recovery, which officially began in June 2009, has been sub-par for growth as well as for wages.

Last week, the Federal Reserve has released its Survey of Consumer Finances for the year 2013. The central bank conducts these surveys every three years, so this is the first comprehensive update we have seen since the recovery has taken hold. There’s lots of fascinating information in the report about income distribution, but let’s cut the chase on the topic at hand: the median American family earned 5 per cent less in 2013 than in 2010 after inflation. (Don’t be distracted by the average, because the results of the top ten percent sway the results.)

And if you want to get really depressed, consider this: median income has declined about 12.4 per cent since the peak in 2004. One of the contributing factors to the consumer credit binge of 2004-2007 was that as incomes slowed, Americans borrowed more to cover the difference. And the housing and credit collapse that helped trigger the financial crisis has taken a big bite out of how much Americans are worth. Median net worth is still 40 per cent below peak. Or put another way by Matthew C. Klein of the Financial Times, “Adjusted for inflation, the typical American is no better off than she would have been in the early 1990s.”

If you are among the top 3 percent who has seen gains in income and net worth, these trends are bad for you too. The reason is simple: there are not enough high earners to carry the economy. We need a broader swath to enjoy growth so that they will spend more freely. The pokey wage growth explains why consumers have become thriftier during the recovery, resulting in GDP growth of about two percent annually, more than a full percentage point below the post-World War II average.

The weakness in consumer spending or the somewhat disappointing August Employment report does not mean that the economy has veered off track. In fact, there is evidence that housing, business spending, exports and government activity are all accelerating. But only when the broad consumer base, which accounts for about two-thirds of overall activity, more fully participates in the recovery, will the country return to trend growth.

MARKETS:

• DJIA: 17,137, up 0.2% on week, up 3.4% YTD
• S&P 500: 2007, up 0.2% on week, up 8.6% YTD
• NASDAQ: 4464, up 0.06% on week, up 9.7% YTD
• 10-Year Treasury yield: 2.46% (from 2.34% a week ago)
• October Crude Oil: $93.45, down 2.8% on week
• December Gold: $1267.30, down 1.6% on week
• AAA Nat'l average price for gallon of regular Gas: $3.44 (from $3.58 a year ago)

THE WEEK AHEAD: More clues about consumer spending will be revealed with the release of the August retail sales report. Economists expect a jump in sales, boosted by cars and an increase in back-to-school shopping. Because how we feel about the economy can be related to how we spend, economists will also be eager to see the preliminary results of the University of Michigan September Consumer Sentiment survey.

Mon 9/8:

3:00 Consumer Credit

Tues 9/9:

Apple event: iPhone 6 and iWatch expected to be unveiled

7:30 NFIB Small Business Confidence

10:00 Job Opening and Labor Turnover Survey (JOLTS)

Weds 9/10:

Thurs 9/11:

8:30 Weekly Jobless Claims

Fri 9/12:

8:30 August Retail Sales

8:30 Import/Export Prices

9:55 Consumer Sentiment

10:00 Business Inventories

When will Americans get a Raise?

The first quarter was waaaaay worse then originally thought. The government’s third and final estimate of GDP showed that the economy contracted by a 2.9 percent annual pace, the biggest decline since early 2009. The drop was caused by a reduction in consumer spending, which was slashed to 1 percent from 3.1 percent, as Americans spent less on health care and other services. Before we get too crazy about the reading, which really was awful, it’s good to note that more up-to-date data show that activity is rebounding in the second quarter. The growth rate of manufacturing output has already strengthened, bank lending is picking up and housing has regained some footing. But the depth of the first-quarter decline means growth over the first six months of the year likely fell below the economy's average rate of just over 2 percent since the economy emerged from recession in June 2009, and far below the U.S. economy's longer-term growth rate of just over 3 percent.

All of this is a prelude to what most Americans see as their most direct link to the economy: the jobs market. Because of a long Independence Day weekend, the June jobs report will be released a day early, on Thursday. After a rough start to the year, job creation has picked up to an average of 234,000 per month over the past three months, which means that employers are adding jobs at the fastest pace in 15 years. Additionally, weekly jobless claims are now just above their post-recession low and are at least back down to where they were prior to the recession's start in late 2007. This year alone has seen advances; with the number of people seeking unemployment benefits falling 10 percent since the first week of January.

Economists expect that hiring will continue to show progress, with 210,000 new positions created in June. The unemployment rate is seen remaining at 6.3 percent. With job creation returning to a more reasonable pace, attention will turn to wages. Average earnings were up just 2.1 percent in May versus a year ago and when adjusted for inflation, wages have actually edged lower by a tenth of a percent from a year ago. But companies think they may soon be paying more. According to the Duke University - CFO Magazine quarterly business outlook, US chief financial officers expect salaries and wages to increase by 3 percent over the next 12 months, which would be more in line with historic averages.

Additionally, now that the economy has recaptured all of the 8.7 million jobs lost during the recession, economists are waiting for disgruntled workers to re-enter the labor force.  Four years ago, 6.8 million Americans were of work for six months or longer – the number now stands at half that amount. While there has been progress, only 22 percent of those who became long term unemployed between May 2008 and June 2009 have returned to full time work since 2008. 28 percent are working part time; 14 percent are still unemployed and 35 percent have dropped out of the labor force. As of May, the participation rate, which is the number of people working or actively seeking employment, remained at a 36-year low of 62.8 percent.

MARKETS:

• DJIA: 16,853, down 0.5% on week, up 1.7% YTD
• S&P 500: 1961, down 0.1% on week, up 6.1% YTD
• NASDAQ: 4,397, up 0.7% on week, up 5.3% YTD
• 10-Year Treasury yield: 2.53% (from 2.63% a week ago)
• July Crude Oil: $105.74, down 1% on week
• August Gold: $1320, up 0.3% on week
• AAA Nat'l average price for gallon of regular Gas: $3.68 (from $3.51 a year ago)

THE WEEK AHEAD: It will be a shortened holiday week, but a busy one! In addition to the jobs report, there will be reports on manufacturing, auto sales and construction spending.

Mon 6/30:

BNP Paribas is expected to settle with US regulators. The bank will likely plead guilty to criminal charges of violating US sanctions and pay as much as $9 billion, which would be the largest ever fine for sanction viaolations. Additionally, the bank is expected to slash its dividend and sell billions of euros to fortify its balance sheet

Deadline for Argentina to begin paying back billions to creditors

9:45 Chicago PMI

10:00 Pending Home Sales

10:30 Dallas Fed

Tues 7/1:

Motor Vehicle Sales

9:45 PMI Manufacturing Index

10:00 ISM Manufacturing Index

10:00 Construction Spending

Weds 7/2:

8:15 ADP Private Jobs

10:00 Factory Orders

11:00 Fed Chair Janet Yellen gives a lecture in DC at an IMF

Thurs 7/3:

8:30 Weekly Jobless Claims

8:30 June Employment Report

8:30 International Trade

10:00 ISM Non-Manufacturing Index

1:00 US Markets close early for Independence Day

Fri 7/4: US Markets closed for Independence Day

May Jobs Report: An Economic Milestone (or Two)

The economy created 217,000 jobs in May and the unemployment rate remained at 6.3 percent. With this report, the US economy reached a milestone: Five years after the end of the recession, total employment is finally above the pre-recession peak, which means that we have FINALLY recovered 8.7 million jobs that vanished from 2008 to 2010. Total employment is now 98,000 above the previous peak and at a new all time high, although this obviously does not take into account that the labor force has grown substantially since the recession started in December 2007. That said, let's take milestones when theu come along! The May results also mean that after the severe winter, the job market remains on an upward trajectory. Over the past three months, job creation has average 234,000, ahead of the monthly job growth seen over the past year of 197,000; and through the first five months of the year, the economy has added just over a million jobs, slightly ahead of last year’s pace despite the winter woes.

There was even a smidge of good news about the labor force -- after that massive 806,000 decline in April, it increased by a modest 192,000 in May. Still, the participation rate (the number of people working or actively seeking employment) remains at a 36-year low of 62.8 percent, which not exactly a sign of a robust economy. Since the start of the Great Recession in December 2007, the labor force participation rate has fallen by more than three percentage points.

One of the things missing from this recovery has been an increase in wages. Average hourly earnings increased by 0.2 percent in May from April, pushing up the annual growth rate to 2.1 percent from 1.9 percent a month ago. This is just the kind of gradual increase in wages that the Federal Reserve is hoping to see – not too slow to indicate a problem, but not so fast that the central bank has to worry about an inflationary spike. The May jobs report shows enough economic progress that the Fed can continue to slowly reduce its bond purchases by the end of the year. Still, with 9.8 million Americans out of work and many more under-employed, there's no doubt that the nation is still struggling to get back its employment mojo.

Speaking of milestones, in the “you may have missed it category,” US household net worth surpassed the pre-recession peak and topped out at $81.8 trillion in the first quarter, according to the Federal Reserve's Q1 2014 Flow of Funds report. That move higher has been powered by a doubling of stock indexes and an improving real estate market. Bill McBride at Calculated Risk notes "Although household net worth is at a record high, as a percent of GDP it is still slightly below the peak in 2006.”

MARKETS: The CBOE Volatility Index (VIX, aka “the fear index”), an options-based gauge of expected swings in the S&P 500, closed at a 52-week low of 10.73 and its lowest finish since February 23, 2007, when it closed at 10.58. It seems like forever ago, when the VIX closed at its all-time high of 80.86, but actually it was only 5 1/2 years ago, on November 20, 2008. Have we returned to the sort of complacency and risk taking that produced the financial crisis? According to The Economist, there are some warning signs: “Issuance of poorly-rated ‘junk bonds’ has risen sharply, as have loans to already highly indebted firms; former pariahs like Greece can now borrow at single-digit rates.” As you celebrate market highs, tread carefully…

• DJIA: 16,924, up 1.2% on week, up 2.1% YTD
• S&P 500: 1949, up 1.3% on week, up 5.5% YTD (18^th closing high of year)
• NASDAQ: 4,321, up 1.9% on week, up 3.5% YTD
• 10-Year Treasury yield: 2.58% (from 2.47% a week ago)
• June Crude Oil: $102.66, down 0.05% on week
• August Gold: $1252.50, up 0.5% on week
• AAA Nat'l average price for gallon of regular Gas: $3.67 (from $3.61 a year ago)

THE WEEK AHEAD: Retail sales will be the main event on the economic calendar, with expectations of a robust monthly gain. Sen. Elizabeth Warren (D-MA) has proposed a bill to address America's $1 trillion student debt problem. Democrats plan to bring it to a floor vote this week. The bill would allow students and families who previously borrowed at higher interest rates to refinance their loans at the lower rates available to students who borrow now.

Mon 6/9:

Tues 6/10:

7:30 NFIB Small Business Optimism Index

10:00 Job Openings and Labor Turnover Survey (JOLTS)

Weds 6/11:

Thurs 6/12:

8:30 Weekly Jobless Claims

8:30 Retail Sales

8:30 Import/Export Prices

10:00 Business Inventories

Fri 6/13:

8:30 PPI

9:55 Consumer Sentiment

When will the job market thaw?

The last two months is reminiscent of the semester I spent in London, when talk of the weather seemed to assume an outsized importance in all conversations. Even Fed Chair Janet Yellen had to bow to Mother Nature during her semi-annual testimony before the Senate Banking Committee last week, which of course was delayed due to…weather. “Mr. Chairman, let me add as an aside that since my appearance before the House committee, a number of data releases have pointed to softer spending than many analysts had expected. Part of that softness may reflect adverse weather conditions, but at this point, it's difficult to discern exactly how much.” Economists say that some, although not all, of the recent slowdown in job growth is due to the run of unusually bad weather. Over the past three months, the economy has added an average of 154,000 positions each month, 40,000 fewer than the 2013 monthly average. Bad weather could also impact the February results, because the Southeast and Northeast were hit by more heavy snowstorms in the week that the BLS conducted its survey, which is why analysts expect that just 150,000 jobs were created and that the unemployment rate will remain at a five-year low of 6.6 percent.

If weather really is the culprit, then a spring thaw should help the employment recovery. But nearly five years after the end of the recession, there are still almost 300,000 fewer private sector jobs now than when the recession started in 2007, according to Calculated Risk. With corporate profits and stock markets soaring, why is it taking so long for jobs to snap back? Henry Blodgett of Business Insider has a theory: “Because American companies and their owners are greedier now than at any time in history.”

Despite the over-the-top headline, Blodgett has a point. He notes that just as corporate profits hit another all time high, companies are paying employees less than they ever have as a share of GDP. That gibes with research that has shown that the spoils of the recovery have gone disproportionately to wealthy Americans, who coincidently own stocks in much great proportion than everyone else. As a result, the top 1 percent captured 95 percent of the income gains in the first three years of the recovery.

So when does this trend return to more historic averages? That’s the magic question that I posed to a number of economists last week, all of whom gave me the same response as my favorite weather pals, when I ask when the spring thaw is coming: “Hopefully, soon.”

MARKETS: February was a strong month for stocks, putting talk of a correction on the back burner, at least for now.

• DJIA: 16,321, up 1.4% on week, up 4% on month, down 1.5% YTD
• S&P 500: 1859, up 1.3% on week, up 4.3% on month, up 0.6% YTD
• NASDAQ: 4308, up 1% on week, up 5% on month, up 3.1% YTD
• 10-Year Treasury yield: 2.66% (from 2.73% a week ago)
• Apr Crude Oil: $102.59, up 0.4% on week
• April Gold: 1321.60, down 0.2% on week
• AAA Nat'l average price for gallon of regular Gas: $3.45 (from $3.77 a year ago)

THE WEEK AHEAD: Monthly automobile sales are expected to come in at a seasonally adjusted annual rate of 15.3 million units, about the same as last year. While bad weather may slow down sales during these early winter months, those purchases are likely to be delayed a couple of months, leading many to forecast a strong spring.

Mon 3/3:

Motor Vehicle Sales

8:30 Personal Income and Spending

10:00 ISM Mfg Index

10:00 Construction Spending

Tues 3/4:

President Obama releases fiscal 2015 budget proposal

Weds 3/5:

8:15 ADP Private Employment Report

10:00 ISM Non-Mfg Index

2:00 Fed Beige Book

Thurs 3/6:

7:30 Challenger Gray Job Cuts

8:30 Weekly Jobless Claims

8:30 Productivity

10:00 Factory Orders

12:00 Q4 Flow of Funds

Former Federal Reserve Chairman Ben Bernanke will be deposed in conjunction with a lawsuit about the 2008 government bailout of AIG

Fri 3/7:

8:30 February Employment

8:30 International Trade

3:00 Consumer Credit