JEFFREY BROWN: After a scary Thursday, all eyes today were on the latest jobs report from the Labor Department. It provided at least some relief, but led to another wild day on Wall Street.
The news from the Labor Department was modestly better than expected. Employers added 117,000 jobs last month. And the unemployment rate dropped from 9.2 percent to 9.1 percent. Estimates from May and June were also revised to show that hiring was better than originally thought. Government jobs continued to be lost in June, 37,000 in all. But the majority of those stemmed from the temporary shutdown of Minnesota’s government.
In a speech at Washington’s Navy yard aimed at improving hiring of unemployed veterans, President Obama said today’s numbers were a good step forward.
U.S. PRESIDENT BARACK OBAMA: We need to create a self-sustaining cycle, where people are spending and companies are hiring and our economy is growing. And we know that will take some time.
But what I want the American people and our partners around the world to know is this: We are going to get through this. Things will get better. And we’re going to get there together.
JEFFREY BROWN: Still, after a week of pessimism and anxiety over the economy, Americans were left wondering what’s next.
JAMIE LEWIS: It just doesn’t seem like it’s — it’s getting any better. It seems like it’s getting worse, but everybody’s saying, OK, it’s picking up a little bit. But the reality is that it’s not. I guess they’re saying that for morale, you know, but it’s — it’s just tough. It’s tough.
PATRICIA TAMUMIHARCAA: I’m trying to be optimistic, and I’m thinking that the economy is on the upswing. So, until something drastic happens, I’m going to keep that opinion.
JEFFREY BROWN: In the meantime, after its largest drop since 2008 yesterday, Wall Street rallied initially on the jobs news. But that was followed by hours of wild seesawing up and down, a total swing of more than 400 points on the Dow Jones industrial average.
At day’s end, the Dow gained more than 60 points to close at 11444, while the Nasdaq lost just under 24 points to close at 2532. Wall Street’s turmoil came after another bad night on overseas markets. In Asia, stocks fared poorly amid growing panic that the U.S. could be sliding into a double-dip recession.
YOSHIHIKO NODA, Japanese Finance Minister (through translator): We must keep our attention on the currencies, but it is also important to monitor the market carefully after the plunge in the Dow.
JEFFREY BROWN: In Europe, stocks tumbled further as doubts spread about the Eurozone’s own spiraling debt crisis. Borrowing costs have skyrocketed, particularly for governments in Italy and Spain.
ANGEL OBRERO, (through translator): I am worried. Of course I am worried. You never know when you might be out of a job.
JEFFREY BROWN: Italy’s leader, Silvio Berlusconi, said today he would speed up budget reforms at home. He also called for a special meeting of G7 finance ministers to address the larger global situation.
Back in the U.S., even the somewhat improved employment picture came with major caveats, as the Labor Department also released somber statistics on those already out of a job. The long-term unemployed, those out of work for 27 weeks or longer, dipped slightly in July. But the average length of unemployment increased to a record 40.4 weeks, more than nine months.
And we assess the day and the way forward now, with Lisa Lynch, former chief economist at the Labor Department, now dean of the Heller School for Social Policy and Management at Brandeis University, Sam Stovall, chief investment strategist for Standard & Poor’s, and Greg Ip, U.S. economics editor of “The Economist” magazine and author of “The Little Book of Economics: How the Economy Works in The Real World.”
Lisa Lynch, we will start with you.
We have looked at the numbers many times over the last months. Some relief today?
LISA LYNCH, Heller School for Social Policy and Management at Brandeis University: We have.
Certainly, after all the drama that we had over the past week, there was a collective sigh of relief when the numbers were released this morning, and in particular when you look at the gains in private sector employment, 154,000 jobs added by the private sector. But at the same time, the headline number of just 117,000 net new jobs is only enough to keep up with the growth of the working-age population and really doesn’t do anything to make a significant dent into the pool of 14 million workers out of work.
JEFFREY BROWN: Where did you see when you look at sectors? Anything jump out at you in terms of growth or potential growth?
LISA LYNCH: Well, the good news as well in today’s report was that a lot of the employment gains were distributed across different parts of the economy. So, we had the old reliable health care sector added over 30,000 net new jobs.
Manufacturing added 24,000 net new jobs, half of them in the auto industry. Retail sector was up. Business and technical services were up. Mining was up. Leisure and hospitality were up as well. So, we had broad growth in employment, modest, but across many sectors of the economy. Plus, we saw hourly wages increase by 10 percent. So, those were areas where we had some good news in today’s report.
JEFFREY BROWN: Now, Sam Stovall, the number came out. Things looked good a bit, and then there were some hours where it wasn’t for the weak at heart, to watch it bounce up and down hundreds of points at a time. What was going on?
SAM STOVALL, Chief Investment Strategist, Standard & Poor’s: Well, Jeff, I figured that what was happening today was what happened on Monday, where instead of getting a one- or two-day rally, we were only getting a one- or two-hour rally.
And so I think what investors were basically saying by voting with their shares is that this is just one data point. Let’s compare it with the second-quarter gross domestic product, which surprised us to the downside, the other indicators like the Institute of Supply Management’s manufacturing and non-manufacturing reports, which were disappointing, as well as the recent factory orders.
So I think a lot of investors are very worried that we will be slipping back into recession.
JEFFREY BROWN: Of course, part of the question — staying with you, part of the question was whether the market had overreacted yesterday, I guess, right, trying to figure out where to settle.
SAM STOVALL: Exactly.
I think a lot of investors were getting out while the getting might have still been good, ahead of the jobless report, because basically investors were worried that we could end up seeing a number similar to last month of about 18,000 or 20,000, or maybe even see a negative number, and they just didn’t want to have to live through that.
JEFFREY BROWN: And I want to ask you one more question this first round here. There are — there have been rumors today of a potential downgrade, and it was supposed to come after the markets closed, by S&P, your company, a downgrade of the U.S. What do you know?
SAM STOVALL: Actually, I know nothing. I am on the equity research side, which operates independently of the ratings side. So it’s sort of like asking somebody at the IRS if they think the Fed will raise interest rates.
JEFFREY BROWN: OK, I will let you off the hook.
But, Greg Ip, let me bring you in here.
Those rumors, though, are they playing a role in what was happening today?
GREG IP, U.S. Economics Editor, “The Economist”: Possibly. There’s all sorts of sort of rumors going on. Essentially, you’re in that period where every little bit of news seems to push the market one way or the other.
Yesterday, it was all about Europe and the European central banks seeming to be somewhat tentative about how much support they would give to the economies of Europe that are suffering all these debt problems. Yesterday, they said they would only buy the bonds of Portugal and Ireland.
Today, there’s some possibility that they will buy the bonds of Italy if Italy can get its fiscal act together. That’s important because Italy is by far the largest economy yet to come under attack because of the problems of its very large debts. But there are other things going on. I think the main thing that we have seen happen in the last few weeks is that the market has recalibrated where they think the U.S. economy is and where it’s going. I mean, go back a month. People said, yes, the economy is weak, but it a temporary soft patch because gasoline prices went up and there were these supply disruptions out of Japan.
Then we got a series of numbers that suggested maybe it was worse, a very bad GDP number, for example. Today’s employment report was very important because it was the first big indicator we have for the month of July, and it was a positive one, not spectacularly positive, but it was positive. So if you thought yesterday that there was a very high chance that the economy was going back into recession, you have probably dialed those probabilities back quite a lot today.
JEFFREY BROWN: That’s the recalibration, you’re saying?
GREG IP: Yes.
JEFFREY BROWN: Yes.
Well, Lisa Lynch, fill that in, because you said earlier that it’s a small number, it’s a positive number, but not nearly as much as we would need if we’re really going to make a dent in the unemployment number.
LISA LYNCH: Right. And there are headwinds that you see even in this report, and in particular the decreases in employment in the government sector at the state and local level.
Now, the state number dropped by 24,000. And that was basically completely explained by the furloughs that you saw in the state of Minnesota. But local governments laid off another 16,000 workers, many of those in the education sector. And that is going to continue throughout the summer and going into the fall.
Given what Congress has decided to do in the context of the debate on increasing the debt ceiling, state and local governments have no lifeline coming from the federal government. So we’re going to continue to see a tale of two cities, state and local governments laying off workers, and hopefully the increases in private sector employment being sufficient to be larger than that and start making a dent into that pool of 14 million unemployed workers.
But that is yet to come. And we need to be seeing numbers of 200,000 to 300,000 workers being added to the economy in order to start feeling like we’re moving forward as opposed to just bumping along on the bottom.
JEFFREY BROWN: Well, Sam Stovall, when you listen to that and you look at an unemployment — a monthly unemployment number, do you, do people on Wall Street look at that as a lagging indicator, a forward indicator? Where does that fit into the — Greg Ip’s calibration of where the economy is going?
SAM STOVALL: It’s usually a lagging indicator. Unemployment tends to peak about nine months after the recession ends, and actually should have started coming down by now.
But usually what we find is that interest rates, whether it’s an inverted yield curve, or we find a stock market performance itself in conjunction with weaker economic data is probably a better indicator of a recession that probably will be coming down the road six months from now.
So I would say that even though we got better-than-expected numbers today, we did raise our risk of recession to 35 percent from 30 percent because of the other data points that had been disappointing.
JEFFREY BROWN: And how much do you see the — earlier this week, the debt deal and the questions about what government can do that we have had all week, how much does that play into the equation at this point?
SAM STOVALL: I think it plays pretty handily into it, because a lot of people questioned whether the government has run out of silver bullets. How much — how many more options are available to them in order to attempt to stimulate the economy once again?
The Federal Reserve will be meeting next week. And I think people are hoping for some sort of a read between-the-lines statement indicating that there might be a third round of quantitative easing or purchasing of bonds, et cetera, and so just some sort of a stimulus that can be afforded to the market.
But I think, as we were saying before, they might have run out of options.
JEFFREY BROWN: Greg, this is your area, of course, watching Washington. And…
GREG IP: Sure, yes.
And I think, actually, typically, when the markets go through these tumultuous periods, there is always kind of that comfort at the back of their minds that, if things got bad enough, policy-makers could move in to turn things around. You would get interest rate cuts by the Federal Reserve, you would get stimulus from the fiscal authorities.
And you’re in a situation right now where people are questioning that. Is there any spare tire left to help us out? The Federal Reserve could bring out another program of quantitative easing. In fact, I think it probably will some time in the next three to six months. But we have already had two rounds, and here we are still with an unemployment rate that’s not coming down.
As for fiscal policy, what was significant, I think, about the debt ceiling deal this week wasn’t that it changed the picture a lot in one way or the other, but you see that the Congress and the president seemed to have shifted now to austerity, which is making the deficit smaller, which we all agree needs to be done over a five- to 10-year frame, but is probably unwise in the next 12 months.
And yet what we do have is a debt deal that will actually tighten the screws a little bit in the next few months. And I think that’s a bit troubling for the market.
JEFFREY BROWN: Do you sense anything going on behind the scenes at Treasury or in the administration about what — OK, we have done the deal, and it may not be what anybody wanted, but what do we do now?
GREG IP: Well, it only took hours before — after signing that deal that President Obama and his officials said, OK, now let’s try and do some stuff to help the economy.
And they have a few specifics in mind. There was a payroll tax cut enacted last September. It expires this December. The administration would like to extend that for an additional year. Unemployment insurance benefits were extended last December. Those extensions also expire at the end of this year. They would like to extend that again into next year.
They would also like to have a burst of infrastructure spending, a new highway authorization bill. There, the odds start to get a little bit worse, because we have a Congress which is not terribly sympathetic to more spending.
JEFFREY BROWN: Right.
All right, we will leave it there. Greg Ip, Lisa Lynch, Sam Stovall, thank you both very — thank you all very much.
LISA LYNCH: Thank you.
SAM STOVALL: My pleasure.