Bated Breath for QE3, State Unemployment Barely Moves

The government reported a year-over-year drop of 1.3 percent in Americans' wages amid talk of a meeting at Jackson Hole, Wyo., that may signal QE3. And while the Dow dropped on Friday, real assets like gold are growing in popularity.

August 22, 2011
By Dees Stribling, Contributing Editor

Courtesy Flickr Creative Commons user Larry Johnson

Is it a new recession or not? The numbers and the opinions keep pouring in. Last week, the Philadelphia Federal Reserve published a survey of regional manufacturers that showed a distinct regional slowdown in their industry, undermining the economy’s main bright spot in recent years. At the end of the week, initial jobless claims spiked more than expected, and the U.S. government also reported a year-over-year drop of 1.3 percent in Americans’ wages — clearly the wrong direction if the economy is to grow.

Still, the Bureau of Labor Statistics reported on Friday that state unemployment rates were essentially unchanged in July, so businesses aren’t firing workers in quite the kind of panic they did in late 2008. During July, according to BLS, nonfarm payroll employment increased in 31 states and the District of Columbia and decreased in 19 states. The largest over-the-month increase in employment occurred in New York (up 29,400), closely followed by Texas (up 29,300). But those are large states. The largest percentage increase in employment for the month was actually in Hawaii, up 1.1 percent, followed by Utah, up 0.8 percent.

Some states are still losing jobs. Number one in that unfortunate category for the month of July was Illinois, down by 24,900 positions, followed by Florida, down by 22,100. The largest month-over-month percentage decline in jobs was suffered in Minnesota, down 0.7 percent. Compared with this time last year, however, most of the states — 44 and D.C. — turned in employment increases. North Dakota was champ in that regard, having 5.2 percent more jobs in July 2011 than July 2010.

QE3 at Jackson Hole?

Meanwhile, the grand panjandrums of the U.S. economy are preparing to meet at Jackson Hole, Wyo. this week. The meeting’s crowning event will be a much-anticipated speech by Federal Reserve Chairman Ben Bernanke on Friday. Last year at Jackson Hole, Bernanke suggested in his central banker way that the central bank just might go shopping for long-term bonds to help keep the economy from sliding into renewed recession (everyone was worried about this last summer, too). Sure enough, the Fed soon did pursue an asset-acquisition strategy — a policy called QE2 by the financial media, though not by Bernanke or his crew.

Naturally, the prospect of QE3 has led to much speculation since even before QE2 ended, and now speculation about what the Fed plans to do to calm agitated markets is at fever pitch. Given the central bank’s history of hints and suggestions rather than direct policy statements, however — the recent promise to hold interest rates low until 2013 might yet prove to be a rare exception to this — it don’t seem likely that anything bold will be proclaimed at Jackson Hole.

Many circumstances are out of the chairman’s control in any case, such as the never-ending Euro-debt saga. Over the weekend German Chancellor Angela Merkel said a forceful “nein” to persistent proposals by various non-German European countries that all the euro-zone countries should band together to issue bonds. Merkel (and most Germans) believe, with some reason, that such a move would amount to sticking Germany with the ultimate responsibility for guaranteeing the bonds, since the Federal Republic still has the strongest economy in the euro-zone by far. Merkel did, however, insist that Germany would defend the euro “under all circumstances.”

Investors Still in Panic Mode

To cap off yet another volatile week on the equities markets, Wall Street ended down on Friday, though not as drastically as on some other days, such as Thursday’s 3.8 percent Dow drop. The Dow Jones Industrial Average lost 172.93 points, or 1.57 percent on Friday, while the S&P 500 was down 1.5 percent and the Nasdaq tumbled 1.62 percent.

Investors continue to pump money into assets with a perception of safety, such as the chemical-element gold, which is sprinting toward $2,000 per troy ounce, a new high in nominal terms but not yet passing the real (inflation-adjusted) record set in 1980. Still, the price of the yellow metal is up about 30 percent since the beginning of 2011. Some prognosticators are talking excitedly about $5,000 an ounce gold; others note that a little thing like a margin hike by Chicago Mercantile Exchange could cause a sudden correction in gold, just as the same thing did for silver earlier this year.

Investors also looked to the debt of that newly AA+ nation, the United States, for a safe haven. Late last week, the yield on 10-year notes dropped briefly below 2 percent for the first time since early in the Eisenhower administration. In what might be a pithy estimation of this moment in economic history, John Hailer, president and CEO of Natixis Global Asset Management in the U.S. and Asia, told the Wall Street Journal over the weekend, “If it’s not a recession, it sure feels like one. And if it feels like one, it doesn’t matter if you can prove it with statistics or not.”