August 3rd – Employment Bounces Back in July

The Labor Department reported today that the U.S. economy created 163,000 jobs in July, up from a revised 64,000 jobs that were created in June. The average estimate among economist surveyed by Bloomberg called for a gain of 100,000 jobs. Meanwhile, the unemployment rate actually climbed to 8.3% as more people entered the workforce in July. Although this better than anticipated jobs report mitigates fears that the U.S. could spiral into a “double dip” recession, it also points to a struggling economy that cannot create enough jobs to bring unemployment figures down.

Ben Bernanke stated that, as a “rough estimate”, jobs would need to increase by 150,000 to 200,000 per month to reduce the unemployment rate. The Fed is scheduled to meet again in September and the August jobs report will be a defining factor on whether or not the Fed will take additional steps to increase their balance sheet and add additional stimulus in the form of QE3.

Although payrolls are rising, without the drop in unemployment, all that is happening is the economy is hitting the brakes and the gas at the same time; it makes a nice sound and the wheels spin, but ultimately it’s not moving forward. We would like to see unemployment recover so that the economic recovery can “move forward,” at least at a faster pace than we see right now.

Europe Ponders Their Next Move…

Over the past few weeks it seems that the “political posturing” among the major European politicians is beginning to soften as the ECB, led by Mario Draghi continues its aggressive campaign to stabilize the Euro zone economy. The European Central Bank outlined a plan this week that included purchasing Italian and Spanish bonds which sent yields on these respective bonds sharply lower. Meanwhile, this latest proposal from Draghi and the ECB is still an implied promise that has not yet been implemented. Financial markets illustrate how investors are still skeptical that Draghi’s plans can be achieved and markets will most likely remain volatile until concrete plans are implemented.

Political Posturing in the U.S…

Meanwhile, here in the U.S. the looming “fiscal cliff” remains a key focal point as both parties continue to disagree on any new measures.

The Senate Finance Committee approved a $205 billion package of tax cuts that would extend items such as the “patch” for the alternative minimum tax, the research and development tax credit, and the deduction for state sales taxes through 2013. The alternative minimum tax patch would be extended for two years, raising the exemption to $50,600 for individuals and $78,750 for joint filers. The committee estimates that 27 million taxpayers would avoid the AMT under the extension.

Meanwhile, the U.S. House of Representatives this week passed a one-year extension of the Bush tax cuts. It would certainly seem that the likelihood of a resolution of these matters before the upcoming election is slim as Congress heads out for a 5 week vacation.

We will continue to monitor and provide updates as this situation unfolds.

Have a good weekend!

Jim