The recent news on the economy has continued to be mixed. The overall pace of recovery this spring and summer hasn’t picked up from the first quarter’s slow rate. While the disappointing pace of growth is partly attributable to temporary forces such as disruptions of auto production and sales following the earthquake and tsunami in Japan, it also reflects a recovery that has yet to gather strong underlying momentum. One bright spot has been the softening of oil and gasoline prices, which has provided some relief to consumers and slowed the rate of inflation.
The slow pace of recovery has been starkly evident in recent news on the labor market. Nonfarm payrolls were essentially unchanged in June, edging up by just 18,000 jobs. The gains previously reported for May and April were revised downward. According to the current estimates, the average increase in jobs for May and June was just 22,000. Removing the downward-trending government sector paints only a slightly better picture: private industry job gains averaged 65,000 in May and June. Hours worked per week and employment in temporary help services, leading indicators of future hiring, also fell in June. The alternative measure of employment provided by the survey of households painted an even bleaker picture of the labor market in June: a fall in employment of 445,000 individuals. In turn, the unemployment rate edged up, from 9.1 percent in May to 9.2 percent in June, and the employment-to-population ratio fell 0.2 percentage point, to 54.2 percent.
In part reflecting the struggles of the labor market, consumer spending has remained sluggish. Adjusted for inflation, personal consumption expenditures fell 0.1 percent in May. But the decline was largely driven by disruptions of auto sales associated the earthquake and tsunami in Japan. Other components of consumer spending, such as services, increased modestly in May. More recently, chain store sales showed strong gains in consumer spending in June.
The news has been somewhat better for business investment and manufacturing. The core measure of new orders and shipments of capital goods, an indicator of business investment, posted healthy gains in May, of about 1½ percent. The ISM’s Purchasing Managers Index (PMI) for manufacturing showed a modest pickup in June, rising 1.8 index points to 55.3. All of the major components of the index, including forward-looking components such as the new orders index, improved in June. The level of the ISM index is consistent with a continued solid pace of recovery in the manufacturing sector.
Headline consumer price inflation has slowed, reflecting recent declines in gasoline prices. In May, the Personal Consumption Expenditure (PCE) price index rose at an annualized rate of 2.1 percent, down from a rate of more than 4 percent in each of the first four months of this year. Over the 12 months ending in May, PCE inflation averaged 2.5 percent. Underlying inflation as measured by the core PCE price index picked up some in May, to an annualized pace of 3.1 percent. On a 12-month basis, core PCE inflation was 1.2 percent in May. Inflation measures of produced by the Federal Reserve Bank of Cleveland—the median and 16% trimmed-mean CPI—put the rate of underlying inflation (on a 12-month basis ending in May) at 1.5 percent and 1.9 percent, respectively. [2011-07-08]