Your Cheat Sheet to This Week in the Economy: Jobs, GDP, and More

It was a crazy week for the U.S. economy, to put it lightly. More than a dozen major economic indicators were reported, and while the data were largely positive there were a few red flags.

In a statement issued Wednesday, the Federal Open Market Committee said that information since June indicates that growth in economic activity rebounded in the second quarter. Labor market conditions improved, with the unemployment rate declining further. However, a range of labor market indicators suggests that there remains significant underutilization of labor resources. Household spending appears to be rising moderately and business fixed investment is advancing, while the recovery in the housing sector remains slow. Fiscal policy is restraining economic growth, although the extent of restraint is diminishing. Inflation has moved somewhat closer to the Committee’s longer-run objective. Longer-term inflation expectations have remained stable.”

In short: The picture is still not clear, but we’re still getting the broad outlines of a recovery. Here’s your cheat sheet to the major economic data releases from this week.

1. Gross Domestic Product

Real gross domestic product — the value of goods and services produced — increased at a seasonally adjusted annual rate of 4.0 percent in the second quarter, according to the Bureau of Economic Analysis, while the first-quarter contraction was revised to a more modest -2.1 percent. This brings GDP growth for the first half of the year to about 1 percent and full-year growth estimates to about 2 percent. The spike second-quarter GDP was due primarily to a dramatic increase in private industry investments. The change in inventories alone added 1.66 percentage points of the 4.0 percent gain.

2. Employment situation

The headline unemployment rate actually increased slightly in July, to 6.2 percent from 6.1 percent in June, according to the Bureau of Labor Statistics. While the economy added 209,000 nonfarm jobs last month, the rate of growth was still slower than the 233,000 expected by economists. The news is not necessarily bad, but the data doesn’t show the kind of job growth traction that economists want to see.

The number of long-term unemployed remained effectively unchanged at 3.2 million, or 32.9 percent of the unemployed.

3. Unemployment insurance

Initial claims for unemployment insurance edged up to 302,000 for the week ended July 26 (which, at the time of writing, is the most-recent week there is data for). Average initial claims before the financial crisis were about 320,000, reflecting normal labor market churn. The relatively steady decline in initial claims seen since the end of the financial crisis indicates that emerging unemployment is returning to acceptable levels.

4. FOMC meeting announcement

“A range of labor market indicators suggests that there remains significant underutilization of labor resources,” stated the Federal Open Market Committee in a statement released after its two-day meeting this week. The phrase, couched in the now-familiar Fed speak used to describe the ongoing but modest recovery, is an indication that the Fed is looking past the generally positive headline unemployment figure and toward other metrics like long-term and underemployment.

The Fed continued to reduce the pace of its asset purchase program, reducing purchases of agency mortgage-backed securities from $15 billion to $10 billion per month, and of longer-term Treasuries from $20 billion to $15 billion per month.

5. Personal income and outlays

Disposable personal income increased by 0.4 percent in June, according to the BEA. The increase was in line with expectations, and was supported by a 0.4 percent increase wages and salaries. And with more money, comes more spending power; personal consumption expenditures increased 0.4 percent on the month, helping drive a 0.2 percent increase in the PCE price index. Stronger consumption heading into the third quarter could provide a boost to overall GDP.

6. ISM Manufacturing Index

The ISM Manufacturing Index showed accelerated business activity in the manufacturing sector in July. The composite index increased 1.8 points to 57.1, making for 14 consecutive months of growth. The new orders index — a proxy for demand — increased 4.5 points to 63.4, also making for 14 consecutive months of growth.

The U.S. manufacturing sector has expanded fairly quickly over the past year and the turnaround has helped support the broad improvement in economic conditions recently. In the July Markit PMI report, which showed growth but did not accelerate like the ISM index, Chief Economist Chris Williamson commented that “Although the pace of growth of manufacturing output slowed in July, it remained close to June’s four year high. The goods-producing sector is therefore on course to provide a significant boost to GDP in the third quarter, building on the 4% annualized growth surge seen in the second quarter.”

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