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Economic Update for the Week of 8/3/2012

US Non-Farm payroll went up 163,000 in July however unemployment rate rose to 8.3% due to new (or previously discouraged) entrants to the workforce. As I've indicated before, we've been adding jobs, some months with a statistically meaningful number however the growth is not large enough to keep up with the natural growth of the workforce. Normally people leave the workforce on average at age 63 however many are choosing to stay because they are not prepared for retirement for several possible reasons. At the same time the Echo boomers and beginning to (attempt) to enter the workforce at a higher rate than Baby boomers leaving the workforce. Eventually this trend will change and we'll see workforce decline. When that happens, don't be surprise when we see jobs numbers coming in weak or even job losses while the unemployment rate goes down.

 

After the President of the European Central Bank (ECB) announced he would do anything necessary to support the Euro, the results from the ECB meeting was no action. Rates were not lowered nor were bonds purchased. Because the markets did not get what they wanted, they had a temper tantrum sending Spanish bond yields over 7% and equity markets around the world went down. At home, the Federal Reserve also took no action.

 

At home in real estate, the Case/Shiller 20-City Home Price Index was up 0.9% in May which is the third monthly gain in a row which is certainly encouraging. Construction spending was up 0.4% for the month and 7.0% year over year. These numbers are not that strong considering the level from which they are increasing however they are better than declines. I think that this helps with consumer confidence when people think the value of their home might go up however it should be short lived because we still have a huge backlog of bank owned foreclosed properties that haven't been put on the market yet.

 

The Retail Sales report from Goldman Sachs declined 1.7% and auto sales were flat. Another sign that the economy is slowing down. Personal income moved a touch higher up 0.5%. Increased income but flat to contracting spending means the personal savings rate when up. I suspect we'll see more of this as it is part of a natural demographic trend of spending less and saving more in preparation for retirement and there is a huge wave of Baby boomers who will be doing this over the next decade. This is also likely due to a general concern people have about the economy and possibly losing a job so they are trying to save more. This is known as the "Paradox of Thrift" were savings is good for the individual but bad for the economy.

 

Droughts across America are causing the prices of farm goods to rise about 6% so expect your grocery bill to increase some more.


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