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Weekly Economic Summary - July 9, 2010

OVERVIEW ~ June 28 through July 2 ~ The psychology of the economic marketplace, to the extent that it can be measured, shows up in the numbers. Over the course of the week, for example, the Dow Jones Industrial Average (DJIA) fell from 10143.81 at the opening on Monday to 9640.69, presumably on growing concerns about the apparent weakness in the American economy. Until recently, it has generally been agreed that the economy would stumble forward for several months and then, at the beginning of the next year, begin to grow in a sustainable way. By Friday, however, after the release of the June employment figures, the DJIA dropped and most other data edged lower. Even the manufacturing sector, which has been one of the brightest lights in the economy in recent months, showed a weakening with the Institute of Supply Management (ISM) Index dropping from a strong 59.7 in April to 56.2 in May, and a 1.4% fall for May factory orders. In such an environment, interest rates are likely to fall, and indeed the 10-year Treasury note declined from 3.110% to 2.956%.

FOCUS ~ The employment report was treated as if it were a mid-term report card for the economy in our nation. The Thursday report of 472,000 new claims for unemployment insurance worried most investors and then the larger employment report, released Friday, caused analysts to doubt their earlier hopes for recovery and caused the markets to fall significantly.

There were 125,000 jobs lost in June. Analysts had hoped for a furthering of the positive numbers reported in the prior month. We need at least 150,000 new jobs each month to just keep up with the employment needs in our nation. In June, the economy failed even to tread water.

The unemployment rate actually declined from 9.7% to 9.5%, but this was not good news either, because the survey indicated that 652,000 capable workers had simply stopped looking for work, pulling themselves out of the so-called "labor pool." Thus, the unemployment rate declined, not because more people found jobs, but because fewer people are looking for them.

The May employment report apparently lulled investors and analysts into a more optimistic view than it should have, largely because of the many census jobs that increased employment numbers and then swiftly fell away. A survey of American economists had resulted in a median expectation of 110,000 new jobs in June. Thus, the markets reacted strongly to the decline.

If there is any good news to be found in the week, it is the fact that overall mortgage interest rates remain even more attractive than they were before.