(By Kevin Donovan) Make no mistake, the June jobs data were weak, but probably not weak enough to trigger a precipitous move by the Federal Open Market Committee to launch another round of quantitative easing before its Aug. 1 meeting.
However, we still think QE 3 is likely to come and that's one reason the market hasn't taken the latest employment disappointment as hard as it did June 1 when the weak jobs data slammed equities. Perversely, the market might have been cheered by an even weaker jobs report because it would have assured a swift Fed response.
The Bureau of Labor Statistics reported this morning that nonfarm payrolls gained a net 80,000 last month. Economists were looking for about 100,000 and hopes for an even higher number were kindled by jobs-friendly dispatches from ADP and initial jobless claims. The May tally was revised up to 77,000 from 69,000, and the April jobs gain was revised down to 68,000 from 77,000. The average gain for the second quarter was 75,000, just a third of the 225,000 average gain in the first quarter. Two relatively bright spots in the report were wages and hours worked, both of which rose slightly.
On the wonkish side of the policy equation, the latest data from the Fed shows the monetary base (so-called "high-powered" money consisting of currency in circulation and commercial bank reserves) was at $2.585 trillion in the two-weeks ended June 27, up just 1% from a year ago and down from $2.645 trillion in the previous two weeks.
The June employment numbers confirmed to us that the slowdown in the economy is real and not just a payback for the warm winter. In addition to the string of weak job numbers, the Institute for Supply Management's manufacturing index for June signaled contraction and its services activity index, though still in expansion territory, weakened significantly.
With oil prices falling and inflation not a threat, the FOMC has the cover to ease policy by expanding its balance sheet.
Sadly, the Fed is the only player free to act. Deadlock in Washington and the looming cliff of expiring tax cuts and government spending sequestration have taken away stimulus from fiscal policy.
If the FOMC does not ease at its Aug. 1 meeting, the next stop will be the annual meeting of monetary heavyweights at Jackson Hole, WY. That confab has traditionally been a pulpit for Fed chairmen to signal the likely course of policy.