Payroll job growth in June was again disappointing at just 80,000, and the unemployment rate was unchanged at 8.2 percent. Several factors have been blamed for the now four-month slowdown in hiring, including: (1) favorable weather early in the year which pulled economic activity forward, (2) high gasoline prices earlier in the year, (3) a weaker global macroeconomic environment with Europe in crisis and Asia cooler, (4) the approaching Fiscal Cliff, and (5) a structural change in labor market dynamics. It is impossible to say definitively which factor or factors are holding down job growth, but it is fair to say that it looks like a little bit of everything. The danger that the U.S. economy now faces is a loss of momentum in the parts of the economy that have been noticeably improving, namely, energy, manufacturing, residential real estate, and automotive. While the likelihood of a collapse in demand for these sectors now looks small, the prospects for ongoing strong growth are fading. So far, lack of hiring has not evolved into broad-based firing, but the longer we have weak hiring the more likely it is that we will see more firing. Auto sales remain above their recession lows, but have not improved since the end of 2011. June auto sales increased to a 14.1 million unit annual rate, up from May’s 13.7 million unit rate, but remain just below this January’s 14.2 million unit rate. The non-manufacturing economy of the U.S. is still expanding, but at a slower rate, as shown by the ISM Non-Manufacturing Survey for June, which showed the non-manufacturing index falling to 52.1 percent, still positive but trending down from February’s recent peak. The ISM’s Manufacturing Index for June fell into contraction territory, just below 50.0 percent, to 49.7 percent. Total construction spending in May increased by 0.9 percent, boosted by gains in private residential activity. Public construction spending is winding down as fiscal stimulus fades. Given the headwinds from Europe and Asia, and the approaching Fiscal Cliff, plus the loss of momentum within the U.S. economy, it looks like the rest of this year will feel like more of the same…a sluggish march toward the Fiscal Cliff.
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