The Failed Moral Argument For A "Living Wage"
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The economy finally got a break with better-than-expected numbers in the July jobs report. Payroll jobs advanced 117, 000, following a revised 46,000 rise in June, and revised 53,000 in May. Analysts had projected a 75,000 gain. Also, the May and June revisions were up net 56,000. Private sector growth was somewhat healthier as private nonfarm payrolls grew 154,000 in July, following an 80,000 rise in June and 99,000 increase in May. The median forecast was for a 108,000 boost for the latest month.
A rebound in the auto sector appears to be helping earnings. Wage growth picked up as average hourly earnings increased 0.4 percent, no change in June. The market forecast was for a 0.2 percent increase. The average workweek for all workers in July was unchanged at 34.3 hours and matched the market consensus.
From the household survey, the unemployment rate slipped to 9.1 percent from 9.2 percent in June. The July figure came in below expectations for 9.2 percent.
Today's report should relieve fears that the economy is headed back into recession. Growth is still modest but positive. And maybe the phrase "transitory" will again be seen applying to first half weakness. Equity futures jumped on the news.
Chinese agency downgrades U.S. credit rating
Beijing (CNN) -- Although the United States narrowly avoided an unprecedented default following congressional approval of a last-minute compromise plan to raise the debt ceiling, China's leading credit rating agency Wednesday downgraded U.S. sovereign debt after putting it on negative watch last month.
The Dagong Global Credit Rating Company, which lowered the United States to A+ last November after the U.S. Federal Reserve decided to continue loosening its monetary policy, announced a further downgrade to A, indicating heightened doubts over Washington's long-term ability to repay its debts.
It said the gloomy assessment -- much lower than the AAA ratings given by the so-called "big three" Western agencies Moody's, Fitch, and Standard and Poor's -- was inevitable given the level of market concern generated by the stalemate between Democrats and Republicans over the debt ceiling.
"The squabbling between the two political parties on raising the U.S. debt ceiling reflected an irreversible trend on the United States' declining ability to repay its debts," Dagong Chairman Guan Jianzhong told CNN.
"The two parties acted in a very irresponsible way and their actions greatly exposed the negative impact of the U.S. political system on its economic fundamentals," he said.
Ironically, Dagong's move could hurt not just the United States but also China, the largest foreign owner of U.S. debt with holdings worth almost $1.2 trillion.
"Our downgrade simply reflects reality," Guan said. "Our rating didn't cause China to lose any money --- it was the inappropriately high ratings for the U.S. by Western agencies that had led China to make risky investments in U.S. debt."
Observers say China, whose foreign exchange reserves now stand at $3.2 trillion, has had little choice but to buy U.S. Treasury bonds.
Company news is seeing a noticeable upturn in layoff announcements, measured in July by Challenger whose count shows 66,414 vs 41,432 in June and vs 41,676 in July last year. The latest count is the highest since March last year. The report warns that the majority of the layoffs came from major employers in bellwether industries -- Merck, Borders, Cisco, Lockheed, Boston Scientific. July aside, the reports stresses that job cuts over the last year have been extremely low.
A big drop in mortgage rates tripped a surge in mortgage applications during the July 29 week. The number of purchase applications rose 5.1 percent in the week but is still no higher than a month ago with the report, issued by the Mortgage Bankers Associations, stressing that activity is at a low base and remains weak by historical standards. Refinancing applications rose 7.8 percent and here too the report is downbeat noting that volume is still 30 percent below the year-ago level with negative equity and a weak jobs market continuing to constrain borrowers. Thirty-year mortgages averaged 4.45 percent, down 12 basis points in the week, with 15-year mortgages down 15 basis points to a new low for the survey at 3.52 percent.
In June, both income and spending were soft, reflecting slow job growth, a decline in motor vehicle sales, and a decrease in gasoline prices. Again, inflation news is mixed but more favorable. Personal income in June edged up 0.1 percent, easing from a 0.2 percent rise in May. The market median called for a 0.2 percent rise for the latest month. Wages & salaries were unchanged, following a gain of 0.2 percent the prior month.
Consumer spending declined 0.2 percent rise after posting a 0.1 percent uptick in May. The latest personal spending expenditure figure matched analysts' projection for a 0.1 percent rise. By components, durables dropped 0.4 percent after falling 1.3 percent in May. Nondurables dropped 0.6 percent, following a 0.3 percent dip the month before. Services were flat, following a 0.4 percent jump in May. Discounting inflation, overall PCEs were unchanged in June, following a 0.1 percent slip in May.
On the inflation front, the headline PCE price index declined 0.2 percent on lower energy costs, after increasing 0.2 percent the month before. The core rate rose but eased to 0.1 percent from 0.2 percent in May.
Year-on-year, headline prices are up 2.6 percent-the same as in May. The core is up 1.3 percent on a year-ago basis, matching May's pace.