For the first week of the month, it looked like the we were entering the time-honored “dog days of August”, that foreboding mindset people get when they feel stuck in the mud and sense that things just weren’t going right.
The first inkling of the blahs was delivered by the Labor Department on Aug. 2, when it released a downtrodden employment report for July, which featured a weaker than expected job growth and a dispiriting rise in the unemployment rate. The report spurred a knee-jerk response in the financial markets as recession fears suddenly exploded and sent stock prices tumbling. Adding rain to the parade, a few days later the government agency delivered more grim news on the jobs front, reporting a spike in initial claims for unemployment insurance for the last week of July. Things looked grim indeed.
But after that first dispiriting week, the sun peaked out of the clouds and things started to look much brighter. The first silver lining came again from the Labor Department in its weekly report on jobless claims. As it turns out, the late-July spike in unemployment claims was caused primarily by Hurricane Beryl which hit Texas businesses particularly hard, causing shutdowns that temporarily sent workers to the unemployment lines. Once that unfortunate weather-related blow faded and businesses reopened their doors, workers were called back, and the unemployment lines thinned out. Over the next two weeks, initial filings fell below the level that prevailed before the hurricane struck.
Unsurprisingly, the financial markets heaved a big sigh of relief, and the early losses in the stock market were rapidly recovered. Recession fears were further dampened in the second week of August when the government released its monthly retail sales report, revealing a much stronger pace of consumer spending in July than expected. If the job market was falling apart, as the July employment report signaled, households would be turning much more frugal than suggested in the retail sales report. We will have to wait until the September 6 release of the August employment report to see if the jump in the unemployment rate in July – from 4.1% to a three-year high of 4.3% – was a fluke. If it continues to rise, the recession worriers will surely come out of the woodworks again, putting pressure on the Federal Reserve to cut rates more aggressively than is currently expected at the upcoming September 17-18 policy meeting. Perhaps it’s biggest challenge will be to separate the signal from the noise in the data and not be unduly influenced by hyper-sensitive markets.