The June employment report sent a clear message to expect more of the same. It showed essentially no signs of improvement as payroll employment fell -467,000 and the unemployment rate rose to 9.5%
The average work week — considered a leading indicator of employment growth — dropped to 33.0 hours and the index of aggregate hours worked fell 0.8%. In the fourth quarter of last year hours worked fell at a -7.4% annual rate. In the first quarter they fell at an -8.9% rate and in the second quarter the index fell at a -7.9% rate.
Both hours worked and employment indicate that this is the worse recession since WW II and show few signs that the recession is ending.
Moreover, growth in average hourly earnings continue to slow sharply.
Consequently, average weekly earnings growth slipped to 0.36%, the smallest gain on record.
However, because of tax cuts and other government transfer payments total nominal income growth is rebounding strongly and providing essentially the only reason to expect economic growth.
But so far most of the tax cuts have gone into the rebound in the personal savings rate. This can be viewed several ways. One, there is normally a lag between income increases and spending growth. But this probably accounts for only a very small share of the savings growth as higher savings are dominated by individuals need to rebuild their balance sheets. Two, the tax cuts are financing the savings increase and preventing a much more severe drop in consumer spending. I personally favor this view and see it is part of the story that as in Japan’s lost decade this fiscal stimulous prevents the economy from sinking into a depression but does not stimulate much growth. I have believed for a long time that the US has slipped into an environment much like Japan’s lost decade and just continue to see developments reinforcing that belief.