July employment report details confirm the economy remains on the brink of recession

The market mistakenly interpreted the July employment report as proof that the economy is still in a sustainable and viable recovery. The market was clearly relieved that July seasonally-adjusted nonfarm payrolls rose by 163,000, well above the roughly 100,000 rise that had been widely anticipated. Moreover, the seasonally-adjusted July nonfarm payroll rise seems like a welcome boost in employment after a downward revised 64,000 rise the prior month. But look below the surface and there is reason to doubt that the supposed July nonfarm employment spike actually occurred. Yes,you read that right. First, according to a Barron's report, the July seasonal adjustment added 377,000 to nonfarm payroll jobs, "the largest such adjustment in July for the past 10 years". In addition, the Bureau of Labor Statistics added 52,000 to the July rise to reflect its guess of the number of jobs added by new or small businesses that it does not sample. Together these two adjustments added 429,000 jobs to the nonfarm payroll employment rise. If I did not know better, I might be suspicious that there was a political component to the nonfarm payroll report, that will be corrected some time after the Presidential election, perhaps next year. The Household survey employment report, from which the monthly unemployment rate is derived, provides an alternative view of July employment. The July rise in the unemployment rate to 8.3%, from 8.2% the month before, is less worrisome than the underlying statistics. The Household survey count of jobs fell 195,000 in July and, even worse, the labor force fell by 150,000 as discouraged job applicants gave up looking for work and left the labor force. The U6 employment series, that counts part-time workers who can not find full-time work and discouraged workers, who gave up looking for work, as unemployed, rose to 15.0% from 14.9%. Taking all the evidence together,the dismal July employment performance is just another bit of support for the view that there is so much economic weakness both currently and ahead that a US recession, though not yet certain, is becoming increasingly likely. The highly regarded Economic Cycle Research Institute is holding to its forecast that a US recession is impending. How could it be otherwise with Europe most likely already in recession, and China's economic growth slowing significantly, depressing the growth of other emerging economies and commodity producers? Together that all but guarantees a global recession. Thus far, budget austerity is the only official prescription for the financial crisis gripping troubled European nations and their banks. The financial crisis is a result of the market's recognition that the southern tier of European countries excessive reliance on debt to finance government deficit spending is not sustainable. The consequent austerity and high yields demanded by the marketplace for some sovereign debt will keep Europe in recession. That lowers the demand for goods and services. The US will be affected both by the decline in global demand, the threat of contagion from the financial crisis in Europe,the US fiscal cliff next January (a depressant equal to some 4% of GDP), and a US economy that is already growing at an almost stall speed of only 1.5% or less in real terms. The US stock market was up sharply on Friday and might even rise further. The equity market has not yet declined by the 4.0% or more in a Friday to Friday week to signal a cyclical equity price decline. Thus, for a while longer, the equity market could continue to avoid the inevitable cyclical decline that a recession will bring. The US Treasury market sold off on Friday, with the 30-year yield rising to 2.66%. However, a decline in this yield to at least 2.0% still appears likely. And accompanying this will be a parallel further decline in the yields of high-grade corporate and municipal bonds. The Fed is likely to engage in further stimulus in September. Philip Braverman, President Braverman Economic and Financial Consulting One Hewitt Square #249 East Northport, New York 11731 This and prior reports can be accessed by going to Internet Explorer and typing in: philipbraverman.blogspot.com I can be reached at philipbraverman@gmail.com