Job Creation Up in July; RE Investment Still Lags; ECB Sends Mixed Messages
- Aug 03, 2012
The U.S. economy created 163,000 jobs in July, according to the Bureau of Labor Statistics on Friday. That’s better than recent months but not quite enough to nudge the economy out of its torpor, since it isn’t really even enough to keep up with population growth. Still, it was a surprise on the upside, since economists had expected an increase of 100,000, compared with 80,000 in June.
Most of the gains, such as they were, came in professional and business services, food services and drinking places, and manufacturing, according to the BLS. The official unemployment rate for the nation ticked up from 8.2 percent to 8.3 percent.
On Thursday, the U.S. Department of Labor reported an uptick of 8,000 in unemployment claims for the week ending on July 28 to 365,000, compared with the week before. As an indicator, the weekly claims have been particularly unpredictable this summer. The less excitable four-week average was down by 2,750, to 365,500.
RE investment has yet to recover
Ahead of employment report, the Bureau of Economic Analysis released more detailed information this week about its preliminary quarterly estimate of U.S. GDP growth. The headline growth number was 1.5 percent, a miserly showing, and most of the components of growth had miserly showings as well, especially when compared to previous recoveries.
The details also showed that various kinds of real estate investment, as a percentage of GDP, haven’t come close to full recovery yet. The main example, of course, is investment in single-family housing, which currently represents about 0.75 percent of GDP. At the peak of the bubble in 2006, that figure was 3.5 percent, clearly an excessive amount. But for the last 50 years, the percentage has fluctuated mainly between 1.5 percent and 2.5 percent; only once before the Great Recession did it drop below 1.5 percent, during the early ’80s, when interest rates went through the roof and it was difficult to buy or built a house for a short time.
The most recent boom in commercial real estate construction was actually in the 1980s, when office construction (for example) peaked at around 0.9 percent of GDP. The Great Recession decline in office was from about 0.4 percent to 0.2 percent of GDP; quite a drop, but not as steep as the residential investment collapse. Retail property investment likewise dropped in the late 2000s, but from a level (about 0.25 percent of GDP) that was less like a bubble and more of a normal cyclical high.
ECB disappoints investors
Investors were nervous about the euro-zone once more toward the end of the week after European Central Bank president Mario Draghi seemed to say that the bank wasn’t going to take action to lower borrowing costs for Spain and Italy any sooner than September, and even then (maybe), action would be contingent on euro-zone governments joining the ECB in bond buying, something the Germans are less than keen to do. This seemed to contradict the impression Draghi gave last week that the bank was ready to “save the euro.”
The nervousness among investors took concrete form in the drop of the euro against almost every other major currency on Thursday. In fact, among developed-world currencies, the euro has had a lousy year, dropping more than 5 percent already against the dollar and the pound since the beginning of 2012, and a whopping 13 percent against the yen.
Wall Street had its own case of the jitters on Thursday, waiting for the employment numbers. The Dow Jones Industrial Average was down 92.18 points, or 0.71 percent, while the S&P 500 lost 0.74 percent and the Nasdaq declined 0.36 percent.