The Hamster Wheel Economy

Trimtabs says the U.S. economy added 171,000 jobs in June. However, real wage and salary growth is -2.0% year-over-year when adjusted for 3.6% inflation and 2% payroll tax cut.

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The U.S. economy added 171,000 jobs in June, reports TrimTabs Investment Research. The June gain follows increases of 127,000 in May and 181,000 in April.

“Employment growth accelerated in June after reaching an interim peak in March followed by a slowdown in April and May,” says Madeline Schnapp, Director of Macroeconomic Research at TrimTabs. “The rapid increase in oil prices earlier this year spooked everyone. Hiring managers put the brakes on hiring until oil prices moderated.”

TrimTabs employment estimates are based on analysis of daily income tax deposits to the U.S. Treasury from all salaried U.S. employees. They are historically more accurate than initial estimates from the Bureau of Labor Statistics.

TrimTabs cautions that while employment improved in June, the improvement may be temporary. Several other economic indicators suggest that economic growth is likely to remain sluggish for the foreseeable future:

Adjusted for the 3.6% annualized increase in inflation, wage and salary growth was only $90 billion annualized in June. When corrected for the $114 billion Federal stimulus coming from the 2% payroll tax reduction, real wage and salary growth is -2.0%.

The housing market remains depressed despite low mortgage interest rates. Since there are an estimated 12 million underwater homeowners, 6.4 million delinquent mortgages, and 24 million unemployed or underemployed workers, it will take several years before housing makes a meaningful contribution to economic growth.

Vehicle sales, an important component of durable goods sales, declined in June. Sales fell to 11.4 million annualized units in June from 11.8 million in May. While part of the decline can be attributed to inventory problems, sales are sluggish due to consumer’s unwillingness to take on a big purchase in the face of economic uncertainty.

Three of the five Federal Reserve manufacturing districts—New York, Philadelphia, and Texas—reported deteriorating manufacturing conditions in June as manufacturers struggled to adjust to high input prices.

“The rebound in employment in June is likely to cheer equities, but the improvement could prove fleeting,” cautions Schnapp. “What we may be seeing is a hamster wheel economy where the economy is finally creating jobs, but net of inflation, income growth is barely positive. Subtract government stimulus, and income growth is actually negative.”
Going Nowhere Fast

Despite the alleged "improvement" in jobs, TrimTabs describes the economy as a "Hamster Wheel Economy" -- the hamster runs faster and faster in its wheel but goes nowhere.

Don't Count on a Big Rebound

The "rebound" in employment will only cheer the markets if there is a significant rebound. Last month the BLS report was +54,000 jobs.

I expectt to see a rebound above that anemic total. However, I will take the "way under" line on Trimtabs +171,000 jobs estimate for Friday's jobs report. Anything under +125,000 and the unemployment rate is likely to tick up, perhaps significantly.

Manufacturing rebounded last month largely on the "strength" of inventory rebuilding, but the services ISM came in weaker than expected. Nigel Gault, chief U.S. economist at IHS Global Insight, summed things up nicely in one word "unimpressive".

Please consider the June 2011 Non-Manufacturing ISM Report On Business®

Expectations were for 53.7, the index came in at 53.3. This was not a disaster, it just was not very good. Employment was the one bright spot, but it was up a statistically meaningless .1.

Backlog of orders is contracting, as is the backlog of manufacturing orders. I expect more weakness coming in both the services ISM and the manufacturing ISM in the months ahead.

Inventory rebuilding will not sell cars, boats, or durable goods in general.