8/7/09

This morning showed good news for the economy, but bad news for the interest rate markets. The bond market was “weighted down” yesterday with decent economic numbers and a decent stock market. This morning we had the Unemployment data. It was a surprise: instead of Nonfarm Payroll dropping 325k, employers cut “only” 247,000 jobs in July, the least in any month since last August. The Unemployment Rate actually dropped to 9.4% in July from 9.5% the prior month, the first time the jobless rate had fallen since April 2008. And the government revised job losses for May and June to show 43,000 fewer jobs lost than previously reported. After the news, we find the mortgage prices worsened.

The reaction this morning to the better employment report covers a wide range of thinking; some see it as everything is go, while others are seeing it as good but still point to the reality that jobs are still being lost. No longer 650K a month, a pace of decline that had to slow. 6.7 mil have lost jobs since the recession began, and more jobs are being cut each month. Inflation chatter and worries will not dissipate on this data but we do not see the Fed tightening for quite a while. One month of better, but still negative employment, isn't going to light any fires at the Fed. However, anyone that was expecting more from the Fed should forget it; no more easing moves.

Consumers are still not likely to increase spending; job losses may be coming down but not many new jobs are on the near term horizon. The outlook for employment, while momentarily looking better based on this morning's data, remains negative. Tim Geithner and Larry Summers, both key Administration officials, continue to expect the unemployment rate to increase and not flatten until mid- 2010. Nevertheless the data this morning will keep pressure on interest rates and run stock indexes higher at least through the rest of the day.