Summary for Week ending Aug 3rd

The week started with expectations of central bank action. The Fed went first, and although the FOMC statement acknowledged that 'economic activity decelerated', the FOMC took no action. Then it was the European Central Bank's turn; the eurozone economy has taken a turn for the worse, and the ECB took no action.

However, after further reflection, some analysts felt the ECB has laid the groundwork for sovereign bond buying, and that the Fed will announce QE3 in September. We will see.

In the meantime, the data was mixed. The employment report showed more payroll jobs added in July than in June, but the unemployment rate also increased to the highest level this year (the same rate as in January and February).

A key story early in the week was that the Case-Shiller house price indexes increased in May and are close to being up year-over-year. Also residential construction spending was up again in June.

However manufacturing was weak; the ISM index was below 50 (contraction) for the 2nd consecutive month. As a reminder, housing is usually a better leading indicator for the US economy than manufacturing. Manufacturing is more coincident. The ISM index suggests some weakness now, whereas housing suggests an ongoing sluggish recovery - and that appears to be what is happening.

Here is a summary of last week in graphs:

' July Employment Report: 163,000 Jobs, 8.3% Unemployment Rate

Click on graph for larger image.

There were 163,000 payroll jobs added in July, with 172,000 private sector jobs added, and 9,000 government jobs lost. The economy has added 1.06 million jobs over the first seven months of the year (1.12 million private sector jobs). At this pace, the economy would add around 1.9 million private sector jobs in 2012; less than the 2.1 million added in 2011. Also, at this pace of payroll job growth, the unemployment rate will probably still be above 8% at the end of the year.

This was above expectations of 100,000 payroll jobs added.

The second graph shows the employment population ratio, the participation rate, and the unemployment rate. The unemployment rate increased to 8.3% (red line).

The Labor Force Participation Rate declined slightly to 63.7% in July (blue line). This is the percentage of the working age population in the labor force.

The Employment-Population ratio declined to 58.4% in July (black line).

The third graph shows the job losses from the start of the employment recession, in percentage terms. The dotted line is ex-Census hiring.

This shows the depth of the recent employment recession - worse than any other post-war recession - and the relatively slow recovery due to the lingering effects of the housing bust and financial crisis.

' Case Shiller: House Prices increased 2.2% in May

This graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000).

The Composite 10 index is off 32.6% from the peak, and up 0.9% in May (SA). The Composite 10 is up from the post bubble low set in March, Not Seasonally Adjusted (NSA).

The Composite 20 index is off 32.3% from the peak, and up 0.9% (SA) in May. The Composite 20 is also up from the post-bubble low set in March (NSA).

The second graph shows the Year over year change in both indices.

The Composite 10 SA is down 1.0% compared to May 2011.

The Composite 20 SA is down 0.7% compared to May 2011. This was a smaller year-over-year decline for both indexes than in April, and the smallest year-over-year decline since 2010 (when the tax credit boosted prices temporarily).

The third graph shows the price declines from the peak for each city included in S&P/Case-Shiller indices.

Prices increased (SA) in 18 of the 20 Case-Shiller cities in April seasonally adjusted (all 20 cities increased NSA). Prices in Las Vegas are off 60.4% from the peak, and prices in Dallas only off 5.8% from the peak. Note that the red column (cumulative decline through May 2012) is above previous declines for most cities.

This was better than the consensus forecast and it is now possible that prices will turn positive year-over-year in June.