The May jobs report was a shocker, with nonfarm payrolls up only 38,000 and private jobs up a mere 25,000. A lot of investors and economists are making the case that this was a weird, one-off, statistical glitch, and that stronger employment is on the way. They may well be wrong.
If you smooth out the numbers with a three-month moving average, job increases have been slowing for five months. The three-month pace last December was 281,000 jobs. In the May report, the pace nosedived to 107,000. The unemployment rate fell to 4.7 percent, but that's largely because 458,000 people left the labor force.
This spells trouble for the economy. And if you step back and look at the whole business sector, a case can be made that the U.S. has been in a mild business recession for as much as a year, if not longer.
Take, for example, business fixed investment in equipment, software, plants, buildings, and so forth. This has been slowing for six straight quarters, and even went negative in the first quarter on a year-on-year basis.
Behind this business-investment slowdown, the broadest measure of profits from the GDP accounts, which very closely tracks IRS profits, has been negative for the past three quarters measured year-on-year. In fact, this slump began in the second half of 2014, almost two years ago.
Profits are the mother's milk of stocks and the lifeblood of the economy. While so many people obsess about the Federal Reserve, the reality is that stocks have been flat over the past year as profits and business investment have been weakening.
Another point: Core capital goods, including orders, shipments, and backlogs, have turned negative over the past three months and across the past year. This is a proxy for business investment, and it's not a good omen.
Finally, the closely watched ISM reports for manufacturing and services are barely above 50. In other words, they point to the front end of a recession. On the manufacturing side, key indicators like production and employment are below year-ago levels. New orders are flat. On the services side, the overall index is below year-ago levels, as is employment and new orders.
Many financial folks concentrate on consumption rather than business indicators, clinging to an outdated view that consumers are 70 percent of the economy. To be sure, consumer spending and housing are rising modestly. But new research by economist Mark Skousen of Chapman University shows that if you look under the hood of the GDP accounts, you will find that the intermediate stages of business production and services, including business-to-business activity, account for 50 percent of overall output. That's higher than consumption, which runs about 40 percent.