What a week! What a month!

Terms like pathetic, shocking, painful, abysmal and costly all apply.

One of the two positive developments of the past week was the release of the July employment data on Aug. 5. After two miserable months of job gains, the U.S. economy did a bit better.

The U.S. Department of Labor reported a net gain of 117,000 jobs in July 2011, slightly stronger than the 85,000 net gain expected. In addition, estimated job gains of the two prior months were revised higher by 56,000 jobs.

Goods-producing employment rose by 42,000 jobs in July, with gains in manufacturing (up 24,000 jobs), construction (up 8,000 jobs) and mining and logging (up 10,000 jobs). Private-sector service-providing employment rose by 112,000 jobs in July, led by gains in education and health services (up 38,000 jobs) and professional and business services (up 34,000 jobs). Overall government employment fell by 37,000 jobs during the month, impacted by 23,000 temporary job losses in the state of Minnesota.

9.1 percent

The U.S. unemployment rate declined to 9.1 percent in July, versus June's 9.2 percent rate. However, the jobless rate declined only because an estimated 193,000 discouraged workers left the labor force, not exactly a positive reason. Because of the labor force decline, the estimated number of unemployed people dropped by 156,000 to 13.9 million.

The current 9.1 percent jobless rate compares to the 9.5 percent rate of one year ago, the 9.5 percent rate of July 2009 and the 5.8 percent rate during July 2008. Keep in mind that roughly 130,000 net new jobs need to be added monthly just to meet the needs of a rising population, just to meet the typical needs of a rising labor force and just to keep the unemployment rate stable. Getting the unemployment rate below 8 percent or 8.5 percent anytime soon is going to be very rough sledding.

Oil plunge

Another positive development in recent weeks has been the sharp decline in oil prices. Only two weeks ago oil was trading at $100 per barrel. Global economic slowing and stock market paranoia have led oil down 20 percent — or $20 per barrel — to roughly $80.

The oil plunge, should it continue or even stabilize, will allow more dollars to stay in consumer hands in coming months, a positive development for consumers and the economy. Declining prices at the pump are similar to a tax cut.

A weak U.S. economy

As noted previously, downward revisions to U.S. economic growth released on July 29 have changed the game in regard to forecasting. Yes, the U.S. Commerce Department noted that the U.S. economy was weaker in recent years and that the recovery was more pathetic than known before.

However, the fact that the economy grew at a revised 0.8 percent real (after inflation) annual rate during 2011's first half is shockingly bad, especially in light of the massive amounts of fiscal and monetary stimulus coming out of the nation's capital. It clearly speaks to the fact that American businesses and American consumers have little to no confidence in either the administration or the Congress to firmly address this nation's ills — and put us back on the path to fiscal sanity.

More European fallout

Another factor contributing to plunging stock prices has been more and more bad news emanating from Europe. I had noted 18 months ago that worst-case fears were that a required Greek financial bailout could trigger similar bailouts in Ireland and Portugal, with fears that such financial contagion could spread to larger European nations, including Italy and Spain.

Unfortunately, that's where we are today. Following bailouts of the three smaller nations, the global focus is now on the ability of Italy and Spain to get and keep their financial houses in order.

Hundreds of billions of additional euros could be needed from Germany and France to stabilize their neighbors, putting pressure on the current AAA ratings of those leading European nations. As noted before, you can bet that tens of millions of German and French citizens wish they had never heard of the idea of "European integration."

S&P slap

The United States of America has enjoyed a AAA rating (the highest in the world) since 1917. As you are no doubt aware following Monday's global stock market shellacking, that rating was reduced on Aug. 5. To add insult to injury, major rating agency Standard & Poor's also maintained a negative outlook for the U.S., with a viable chance of another downgrade within two years.

S&P noted the broken nature of political discussion in Washington, D.C., and suggested that the increase in the debt ceiling and modest adjustments to future government spending growth were insufficient. For the moment, the other two major ratings agencies, Moody's and Fitch, are maintaining their highest ratings.

S&P noted that the fastest any nation has ever returned to a AAA rating was nine years. Given the disastrous nature of politics in the nation's capital, it is more likely that the next ratings change by S&P will be down, rather than up. Note: one can make a very strong case for congressional term limits after seeing the carnage left by broken political dialogue of the past four to six weeks.

The Fed

4 comments on this story

In summary, the Federal Reserve's Open Market Committee (FOMC) indicated Tuesday its view that economic growth within the U.S. is "considerably slower" than the "moderate pace" language used in prior meetings. The Fed left the door slightly ajar for a third round of monetary stimulus later this year, although many economists and market players hope we don't get to that point.

The Fed's traditionally vague language as to the direction of monetary policy was "turned on its ear" at this meeting. The FOMC statement suggested that the Fed will keep its federal funds rate — the most important of all short-term interest rates — at its current level of 0 percent to 0.25 percent "at least through mid-2013." That is almost two years from now! The rate has already been at the current historically low level for more than two-and-a-half years.

Snap … crackle … pop!

Jeff Thredgold is the chief economist for Zions Bank and founder of Thredgold Economic Associates, a professional speaking and economic consulting firm. Visit www.thredgold.com.