Has the Economic World Gone Flat?

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Just what we need — more nothing.

Unemployment in July was unchanged from unemployment in June, holding steady at 4.5 percent, the Labor Department reported Friday. Non-farm payroll cuts totaled 42,000 jobs, compared with a revised loss of 93,000 jobs in June. Workers’ wages inched up 4 cents, or 0.3 percent, and the average workweek was unchanged at 34.2 hours.

Um, good news, right? Sort of. The quick conclusion — one adopted immediately by the bond markets, which opened down on the report — is that the economy is indeed deteriorating at a slower rate, as Alan Greenspan so charmingly put it before Congress last month. Bonds fell because good news for Main Street is most definitely bad news in bond land — these guys worry about inflation and little else, so any sign that the economy is finished getting worse drives those long-term interest rates up to cover the cost.

Wall Street, who expected worse numbers, seemed to have a similar notion; stocks sagged into the mid-morning. But the paper profits available after a week of middling gains was probably drawing as many sellers as an economic report that steadfastly refused to say anything definite. Because the only sure verdict on this week’s slightly encouraging job news — weekly unemployment claims dropped for the fifth straight week Thursday — was that the verdict isn’t in yet.

According to outplacement firm Challenger Gray & Christmas, U.S. companies cut 124,852 jobs in June alone, bringing the total number of job losses this year to 777,362 — and July’s numbers aren’t expected to represent much relief. The question every economist has got to be asking: Will most of those pink-slippers get new jobs, or are they burning through their severance packages right now and making their way to an unemployment line near you?

It might as well be the motto of the summer: Things seem to be leveling off — and the worst may or may not be yet to come. The upside of another month at 4.5 percent is that those all-important consumers are that much less likely to get scared in August about losing their own jobs (unless they’ve just been pink-slipped). It means that 95.5 percent of Americans who want one still have some form of gainful employment, and historically that’s not a slowdown, that’s a boom.

But it doesn’t mean the Fed is going to call off that widely expected rate cut at the August 21 meeting — though we’re definitely talking a quarter-point now — and it doesn’t even necessarily mean that the October 2 meeting will be the end of the easing regime. Unemployment, a lagging economic indicator, tends to rise, not fall, toward the end of a slowdown, and with all the layoffs floating around it’s a little hard to believe that we’re seeing the labor market stabilize at what is still — historically — a very low level of joblessness.

Of course, it might. If consumer spending holds up a while longer, we’ll have dodged a recession and smoothed out the business cycle into a remarkably tolerable shape, considering the size of the bubble that preceded this "period of sub-par growth." (Greenspan again.)

But that hardly qualifies as great news, especially from Wall Street's perspective — if unemployment was rising as expected, at least that would suggest that the shedding of costs by businesses was still going strong. The real elephant in forecasters’ elevators these days is the possibility that what we’ve been seeing this summer — limping GDP growth, listless Wall Street trading, the end of the free-money years in tech, and a higher level of joblessness that we got used to in the latter half of the ‘90s — is precisely what we’ll be seeing for the rest of the year. And quite possibly the better part of next year too. Nobody knows for sure.

Doesn’t exactly make you want to buy stocks, does it?