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Investing Specialists

Employment Report Cause for Concern?

After an awful jobs report, July has more bad news in store.

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I remain positive on the economy despite disconcerting news this week on the employment front and continued interest rate increases around the world. However, readers should understand that the bearish case is building, and the world has gotten a bit more uncertain over the last week. The employment report was truly awful: No employment growth to speak of, no growth in hours worked, and no wage growth whatsoever. This is on top of an already poor report for May that was revised downward. I had been bracing myself for a lot of negative data this month, but the employment report was not one of my big worries.

The piece of the puzzle that just doesn't seem to fit with the employment report is that consumer spending, as reported by the International Council of Shopping Centers, accelerated sharply in May and June even as the official employment data took it on the chin. If the employment numbers are right, where are consumers finding the cash?

The whole situation with the Japanese automakers further complicates the interpretation. It is certainly weighing on the employment side, particularly since  Toyota (TM) and  Honda (HMC) were both near the very bottom of their production curves during the week of the employment survey. (Toyota has subsequently boosted production in a very big way with Honda expected to do the same by August.) This in turn created shortages that caused even United States auto makers to raise prices, scaring away auto buyers in droves. Sales fell from over 13 million units in April to 11.8 million in May to an even more dismal 11.4 million units in June. But sometimes when auto sales falter, consumers have more cash to spend on shorter-term needs; chances are some of the strong shopping numbers may be at least a little inflated. Even so, the shopping data look impressive, and within the monthly reports the weekly data accelerated sharply during the last two weeks of June.

Robert Johnson, CFA does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.