When will Americans get a Raise?

The first quarter was waaaaay worse then originally thought. The government’s third and final estimate of GDP showed that the economy contracted by a 2.9 percent annual pace, the biggest decline since early 2009. The drop was caused by a reduction in consumer spending, which was slashed to 1 percent from 3.1 percent, as Americans spent less on health care and other services. Before we get too crazy about the reading, which really was awful, it’s good to note that more up-to-date data show that activity is rebounding in the second quarter. The growth rate of manufacturing output has already strengthened, bank lending is picking up and housing has regained some footing. But the depth of the first-quarter decline means growth over the first six months of the year likely fell below the economy's average rate of just over 2 percent since the economy emerged from recession in June 2009, and far below the U.S. economy's longer-term growth rate of just over 3 percent.

All of this is a prelude to what most Americans see as their most direct link to the economy: the jobs market. Because of a long Independence Day weekend, the June jobs report will be released a day early, on Thursday. After a rough start to the year, job creation has picked up to an average of 234,000 per month over the past three months, which means that employers are adding jobs at the fastest pace in 15 years. Additionally, weekly jobless claims are now just above their post-recession low and are at least back down to where they were prior to the recession's start in late 2007. This year alone has seen advances; with the number of people seeking unemployment benefits falling 10 percent since the first week of January.

Economists expect that hiring will continue to show progress, with 210,000 new positions created in June. The unemployment rate is seen remaining at 6.3 percent. With job creation returning to a more reasonable pace, attention will turn to wages. Average earnings were up just 2.1 percent in May versus a year ago and when adjusted for inflation, wages have actually edged lower by a tenth of a percent from a year ago. But companies think they may soon be paying more. According to the Duke University - CFO Magazine quarterly business outlook, US chief financial officers expect salaries and wages to increase by 3 percent over the next 12 months, which would be more in line with historic averages.

Additionally, now that the economy has recaptured all of the 8.7 million jobs lost during the recession, economists are waiting for disgruntled workers to re-enter the labor force.  Four years ago, 6.8 million Americans were of work for six months or longer – the number now stands at half that amount. While there has been progress, only 22 percent of those who became long term unemployed between May 2008 and June 2009 have returned to full time work since 2008. 28 percent are working part time; 14 percent are still unemployed and 35 percent have dropped out of the labor force. As of May, the participation rate, which is the number of people working or actively seeking employment, remained at a 36-year low of 62.8 percent.

MARKETS:

• DJIA: 16,853, down 0.5% on week, up 1.7% YTD
• S&P 500: 1961, down 0.1% on week, up 6.1% YTD
• NASDAQ: 4,397, up 0.7% on week, up 5.3% YTD
• 10-Year Treasury yield: 2.53% (from 2.63% a week ago)
• July Crude Oil: $105.74, down 1% on week
• August Gold: $1320, up 0.3% on week
• AAA Nat'l average price for gallon of regular Gas: $3.68 (from $3.51 a year ago)

THE WEEK AHEAD: It will be a shortened holiday week, but a busy one! In addition to the jobs report, there will be reports on manufacturing, auto sales and construction spending.

Mon 6/30:

BNP Paribas is expected to settle with US regulators. The bank will likely plead guilty to criminal charges of violating US sanctions and pay as much as $9 billion, which would be the largest ever fine for sanction viaolations. Additionally, the bank is expected to slash its dividend and sell billions of euros to fortify its balance sheet

Deadline for Argentina to begin paying back billions to creditors

9:45 Chicago PMI

10:00 Pending Home Sales

10:30 Dallas Fed

Tues 7/1:

Motor Vehicle Sales

9:45 PMI Manufacturing Index

10:00 ISM Manufacturing Index

10:00 Construction Spending

Weds 7/2:

8:15 ADP Private Jobs

10:00 Factory Orders

11:00 Fed Chair Janet Yellen gives a lecture in DC at an IMF

Thurs 7/3:

8:30 Weekly Jobless Claims

8:30 June Employment Report

8:30 International Trade

10:00 ISM Non-Manufacturing Index

1:00 US Markets close early for Independence Day

Fri 7/4: US Markets closed for Independence Day