Dark Clouds Ahead for the US Economy
Friday, a grin, hang on ugly, May jobs report, in which virtually no jobs were created and the April/March reports revised downward has clouded the outlook for the fragile US economy.
Last week the US Fed was poised to raise interest rates perhaps as soon as its June FOMC meet, a sign of confidence that the economy was strengthening after struggling just to grow early this year.
Any thoughts of that went up in smoke at 8:30a EDT Friday when the US government reported that employers added 38,000 jobs in May, the fewest since Y 2010 and far less than 81 economists surveyed had expected. Moreover, the government cut its estimate of hiring for March and April by a combined 59,000.
“We had been expecting a June rate hike,” said US Chief Economist at Standard & Poor’s Ratings Services. “Now it seems like the Fed can take a breather” and await other economic statistics to help clarify the economic picture.
Other recent data are also sending clouded messages to US economic policymakers, investors and corporate executives.
Friday’s jobs report was without any doubts grim to ugly.
The unemployment rate fell to an 8-year low 4.7% only because 458,000 Americans stopped looking for work and were no longer counted among the unemployed. Many of them had likely grown discouraged over failing to find a job. The real US unemployment rate is closer to 20%.
The US economy has now added just 347,000 jobs over the past 3 months, the weakest 3 month stretch since Y 2012.
Jobs remain plentiful, but few qualified to work them.
And the US government reported last month that job openings totaled nearly 5.8-M in March, the most since July. That kind of figure is normally a sign of a robust job market, in this case no.
Despite the slumping job growth, American consumers are piling up debt and so far appear unfazed. Consumer spending surged in April by the most in more than 6 years. That is especially important because consumer spending accounts for about 70% of US economic activity.
Low gasoline and historically low borrowing rates have encouraged people to borrow and spend.
The Big Q: Can consumer spending prove resilient even if the job market continues to lose vigor?
The Big A: Likely not, the Conference Board reported Tuesday that its index of consumer confidence fell last month to its lowest level since November.
Have a terrific weekend.