Sales at U.S. retailers unexpectedly fell in July despite a boost from the cash-for-clunkers automobile program. Sales decreased 0.1% and the decrease excluding automobiles was 0.6%. This surprising decline is most likely a result of high unemployment. In fact, the Labor department announced today that 558,000 people filed first time claims for jobless benefits last week, up from 554,000 the week before. The American economy will probably continue to throw out mixed signals until unemployment numbers decline.

Despite signs that the economic recovery may be here to stay most economists believe that the Fed will choose to leave a key interest rate at record lows. The Fed remains concerned about increasing problems in the commercial real estate market and the strength of the financial sector. For these reasons, and also because of the severity of the recession, the Fed is expected to take a cautious approach towards raising interest rates.

The productivity of U.S. workers grew in the second quarter at the fastest pace in almost six years. This increase came as a result of employers getting more out of their remaining staff in order to bolster profits. Productivity, a measure of how much an employee produces for each hour worked, rose at an annual 6.4% pace, after achieving just 0.3% gains the prior three months. Productivity gains result in lower expenses meaning companies may need to fire fewer workers as sales stabilize. This may indicate that the worst employment slump in decades is slowly coming to an end. Another benefit of efficiency gains is that they also help curb inflation thereby providing the Federal Reserve with more flexibility.

In recent months U.S. companies have been beating analysts’ earnings estimates at an almost record rate. For the second quarter 72.2% of S&P 500 companies surpassed consensus estimates for profit, just below the 72.3% ratio five years ago that was the highest since at least 1993. Tempering this good news is the fact that analysts’ earnings estimates were noticeably depressed during this quarter thereby setting a low threshold for companies to beat estimates.

Other good news included the fact that the number of contracts to buy previously owned homes in the U.S. rose 3.6% in June, the fifth straight monthly increase, as lower prices and mortgage rates lured buyers. Also, the unemployment rate fell for the first time in more than a year, dipping to 9.4% from a 26-year high of 9.5%. The remainder of August and September should prove to be an interesting test of the rally’s resiliency as traders are betting the VIX, a gauge of expected stock swings, will increase 13% in the next five weeks.

As expected, U.S. personal incomes tumbled 1.3% in June due to rising unemployment and uncertainty of job security.  Despite stimulus efforts by the government to boost economic growth, significant economic recovery requires increases in consumer spending, which comprises roughly 70% of GDP.  Until a boost in job hirings, Americans will continue to trim excess spending and budget only for the necessities.

Staffing

The Obama Administration’s stimulus package has not created job openings that the staffing industry was depending upon.  Unless unemployment outperforms projections, a large portion of firms in the lower-to-middle market will be forced to close doors.  Healthcare staffing will be the only sub-sector to experience activity in the M&A market until labor market conditions improve.  To see our latest staffing Star Report, please click here.