Is the economy growing a lot slower than most pundits and Fed chairman Alan Greenspan think?
This is the big question being asked after July job growth came in much weaker than most soothsayers were anticipating.
On Friday, the Labor Department reported that 32,000 jobs were created in July. That was well below the 228,000 predicted by Wall Street economists, according to Reuters.
In addition, the Labor Department revised its job-growth figures for May and June downward, making July the fourth straight month of slower job growth, according to the wire service.
The unemployment rate, based on a separate poll of households, dropped to 5.5 percent from 5.6 percent the prior month. Analysts cited terrorist fears and surging oil prices for companies’ reluctance to hire.
Although the stock markets tanked on the news, the bond markets surged, with investors banking on the Fed slowing down and perhaps halting plans to raise interest rates. The thinking is that slower growth will reduce the chance of inflation picking up.
The Fed hiked short-term rates in late June and was expected to do so again this Tuesday. However, Friday’s job announcement created some uncertainty.
Stephen Stanley, chief economist at RBS Greenwich Capital, is still a believer. “I have little doubt that the Fed will raise rates by 25 basis points next week,” he told Bloomberg. “The odds of moves in September and beyond have obviously diminished today.”
Joseph Keating, who oversees $25 billion as chief investment officer at AmSouth Asset Management in Birmingham, Ala, told the wire service that his firm cut its forecasts for the economy for the second half of the year.