Jobs Report: 'Better Than Expected' Is Hardly Enough

'Somewhat better than expected' isnt nearly enough.

An unanticipated jump in July payrolls provided a brief respite Friday morning from the worst stock selloff in three years, but the labor report does little to allay fears the U.S. is slipping back into recession.

It was a relief relative to expectations. But in terms of the short-term, stronger economic growth we need, unfortunately we seem to be going in the wrong direction, said Cliff Waldman, an economist with Manufacturers Alliance/MAPI, a public policy and economics research organization in Arlington, Va.

Payrolls increased by 117,000 in July and the unemployment rate fell to 9.1% from 9.2% in June, according to Labor Department statistics. Analysts had forecast an increase of 85,000 jobs and an unchanged unemployment rate.

U.S. stock markets rose briefly just after the 9:30 a.m. opening, with the Dow Jones Industrial Average surging more than 150 points. But it didnt last. Stocks quickly fell back into familiar red territory, adding to Thursdays 512 point loss on the Dow. With about two hours left in the session, the Dow was again higher.

Waldman said the U.S. will need to start creating between 150,000 and 200,000 jobs a month just to make a dent in the unemployment hole created since companies began shedding jobs nearly four years ago.

And without significant improvements in the labor market, Waldman sees consumer spending, which makes up 70% of the U.S. economy, taking a sharp turn for the worse.

In fact, thats already begun. The Commerce Department reported earlier this week that consumer spending dipped 0.2% in June, slipping for the first time in nearly two years as U.S. incomes were essentially stagnant.

It looked alarmingly like the consumer is starting to retrench, said Waldman.

If that trend continues another recession is all but unavoidable.

But perhaps the most troubling aspect to the deluge of lousy economic news over the past few months is that no one anywhere seems to know what to do about it.

The debt crisis in Europe, once seemingly contained to the poorer nations of Portugal and Greece, has now spread to the much larger economies of Italy and Spain. And the prolonged and polarizing debt debate in Washington, D.C., ended earlier this week with a deal that practically everyone agrees didnt go nearly far enough in reducing the runaway U.S. deficit.

There seems to be a lack of any coherent thoughtful policy making around the world, especially in Europe and the U.S., said Waldman.

One likely reason policy makers seem out of ideas is that theyve run out of weapons. Interest rates cant get much lower in the U.S., and expensive and controversial stimulus packages have met with dubious success at best. With governments reluctant to take on more debt, new stimulus programs are unlikely.

The markets have finally realized growth is stalling in the major economies and that governments and central banks have backed themselves into a corner, said Brian Dolan, chief currency strategist at The markets are asking where the growth is going to come from.

Its a vicious cycle, he explained: as growth has stagnated around the globe it has caused tax revenues to shrink and countries are finding it increasingly difficult to service their massive debt burdens. Thats especially true in the U.S. and Europe.

Dolan sees a multi-year downturn as housing and labor markets flat-line or shrink, and consumers and businesses de-leverage after years of living beyond their means.

Those forces arent dissipating anytime soon, he said.