While the jobs report looked dreary on the surface, there was more to it than first appeared.

Employment fell last month by 54 thousand, led by the loss of 114 thousand census workers. Private sector employment rose by 67 thousand jobs, and in July the private sector added 107 thousand jobs, 36 thousand more than originally reported. Unemployment ticked upwards, but that was because the labor force grew by 550 thousand workers. And the number of people unemployed 26 weeks or longer fell by over 300 thousand people.

Of course, these positive moves don’t mean that the economy is taking off. We haven’t seen the word V-shaped, lately. But they do indicate that the economy isn’t ready to fall off a cliff. We’ve grown considerably since the Administration seriously considered nationalizing Bank of America and Citibank in the winter of 2009.

Employment is, at best, a concurrent indicator. It doesn’t tell us what the economy is going to do. But it’s the best picture we have of what the economy is doing. And what it’s telling us is that the economy is muddling right now. Not crashing, not booming but boring. And given what’s been going on in the markets, boring sounds pretty good.

What will happen next? If the leading indicators are to be believed, not much. After growing sharply from March of 2009 through February 2010, the index has been roughly unchanged, with a slight upwards bias. A boring, slow-growth economy. Not great, but not so bad either.

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 Not So Bad … [1:31m]: Play Now | Play in Popup | Download

Is the American dream of home ownership still alive?

Many people don’t think so. The appreciation from ’03 through ’07 seemed to make it impossible to buy in unless you used special financing. Demand grew and prices soared across much of the country. But then the loans started to turn sour and unqualified borrowers defaulted. The bubble burst and home prices declined by up to 50%. Is the dream dead?

It depends on what that dream is. If homeownership means investing in something that will appreciate 30% per year, pay your bills, and fund your retirement, those days are over. Those dreams have become nightmares for millions who have been foreclosed upon and are now sliding towards bankruptcy. But if the dream means having a solid and fairly safe long-term investment that’s coupled with the satisfaction of owning the home you live in, that dream is still alive.

The financial benefit of housing was never based on appreciation. Over the long-run, home prices grow along with incomes. No, it’s based on what economists call “imputed rent.” A home provides an essential service—shelter. Typically, the value of that service is about 6% on your investment after maintenance and repairs.

Look at it this way: after the dot-com crash, stocks declined by about 50%. When Enron went bust shareholders got nothing. But when home prices fall, homeowners still have a house. And the benefit is still tax-free. That’s why a home is still a sound investment.
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 American Dreamin’ [1:31m]: Play Now | Play in Popup | Download

Manufacturing reported good news yesterday. Does it make a difference?

Yesterday the nation’s purchasing managers noted that their index of manufacturing activity rose more than economists expected. Many had expected that the story of slowing economic growth would be confirmed yet again by another economic indicator. But this index didn’t keep to the story line, and showed that the nation’s factories increased production.

The details were impressive: of the 15 different industries broken out in the report, 11 increased and four decreased. The ones that went up were quite diverse-leather, electrical equipment, machinery, food. The ones that went down seemed to be centered around energy production and printing. This is unquestionably good economic news. Factory managers wouldn’t be expanding production if they didn’t have the orders in hand to do so.

But the really interesting story has to do with global production. By the broadest measures, US production is back to the level it was in 2005, up from its recession lows where it got back to 1998’s level. But global production has now surpassed the all-time-high that was set in March 2008. Global production has now grown beyond its previous pre-recession record.

We live in a global economy, and what was alarming about the financial crisis was it’s universal character: every place seemed to go into a downturn. But following an unprecedented level of international policy coordination, we seem to be on the road to recovery. With the world’s economy growing, any local slowdown should be short-lived.
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 Global Stuff [1:32m]: Play Now | Play in Popup | Download

Many wonder what will get the US economy moving again. For them I have one word:

Wheat.

Our farms are about to experience perhaps their best harvest ever. A combination of ideal weather at home, crop failures abroad, and increasing global demand for cereal grains have created a perfect anti-storm, in which high prices and record yields combine in a cash-flow bonanza for the American farmer.

Some of the beneficiaries of this prosperity will be the usual suspects: states like North Dakota and Nebraska, which already have the lowest unemployment in the country; farm machinery makers like Deere and Case New Holland; or seed-engineers like Dupont. These companies supply the raw materials that farmers need to turn sun, rain, and seeds into a global harvest.

But a secondary beneficiary will be our financial system. Banks across the Midwest will be awash with deposits, and their loan quality will improve as local economies see the stimulus a growing economy provides.

It’s likely that demand will continue to increase, even with higher prices. Globalization means hundreds of millions of new consumers can afford to buy more meat, which means more demand for grains.

A stronger agricultural sector and increased global trade may provide the spark that the US economy needs to get out of its funk. If the grain-belt gives us that, you should thank a farmer.
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 Sowing and Reaping [1:31m]: Play Now | Play in Popup | Download

If we told our leaders that there was a magical way to stimulate the economy, generate new tax revenues, increase demand for housing, and boost wages for American workers, would they go for it? Not a chance.

The magic is through immigration. The San Francisco Fed recently published a study which showed increased immigration leads to higher wages for everyone. Over the long run a net inflow of immingrants equal to 1% of employment increases income per worker by around .7%.

Nobel laureate Gary Becker of the University of Chicago has a way for the U.S. Treasury to benefit immediately from increased immigration: charge immigrants a significant fee—say $50 thousand—for the privilege of coming to America. We’re known around the world for our open, opportunity-filled society, and we naturalize about a million immigrants per year. Why not allow immigrants to reduce the deficit by $50 billion?

But the San Fran Fed’s argument is economic, not political: they compared the economies of states with high immigration to states with low immigration. The effects were delayed, but significant. Increased immigration leads to more specialization, higher productivity, and higher wages. Over the period from 1990 to 2007, immigration may be responsible for perhaps 25% of the real wage gains workers enjoyed during this period.

No matter how convinced economists are that immigration creates jobs, though, most voters won’t buy it. It’s too easy to see the short-term issues—another job taken—and miss the long-run effects. But what is unseen is often of more import than what is seen.
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 Low Hanging Fruit [1:31m]: Play Now | Play in Popup | Download

The economy turned out to be weaker than expected. Why is this good news?

On Friday the Commerce department reported that the economy grew at a rate of 1.6% during the second quarter rather than 2.4% as originally reported. That’s down significantly from the growth rate of the first quarter, which was almost 4%. So if the economy is slowing, why did interest rates rise, stock prices rally, and oil prices go up? Isn’t slower growth bad news?

It is if you’re a doom-and-gloom forecaster. Robert Shiller, author of “Irrational Exuberance,” claims that the risk of a second recession is more than 50%. He also noted that home prices could decline, as they did in Japan, for up to 15 years. The other usual gloom-sters could be seen on TV over the weekend.

But when you look into why growth was revised, you see a very different picture. This isn’t a case of consumer demand being revised downwards. Demand was actually stronger than last quarter. But we imported a lot more than Commerce originally estimated. Stronger imports are a sign of strength, not weakness. Only this time we exported some of our strength to the rest of the world. They responded in kind and our exports went up, too. But they couldn’t keep up with imports, the deficit widened, and that took away from GDP.

The recent surge in imports is atypical, and curious. My own hunch is that it is due to all the foreign content in much of our domestically produced goods. Did you know that the new Malibu built in Kansas City has 25% of its parts produced outside North America? Or that the iPad, designed in California, is assembled in China from parts in Korea Japan, and Texas?

All this trading makes for slower growth in the short-term, but a more efficient and robust global economy in the long term.
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 Good News? [1:31m]: Play Now | Play in Popup | Download

Have we become a plugged-in nation?

In the US there are now over 285 million active wireless devices, and that number could double in 7 years or less. All those devices are taxing our outlets and taxing our minds. A couple of recent studies show that all our time on-line may be affecting our brains. The constant stimulation of Facebook, Twitter, and texting can alter our brain’s neuro-pathways and make it difficult to think deeply and creatively.

But it’s also affecting our power grid. With so many devices looking for so many outlets, it’s inevitable that topping off our batteries will become as important as tanking up our cars. Airline terminals especially need more. At Jet Blue’s new Terminal 5 at JFK Airport in New York, they have 806 plugs available. During peak times it can resemble a computer lab.

All this time plugged in is changing the kinds of demands our power system faces. It is no longer an option to tune in, drop out, and go off the grid when a critical business contact promises to email you the information you need. And heaven help you if your battery is running low.

But adjustments to our mental and physical infrastructure come slower than changes in the social pathways we use. We may have reduced our need to commute physically, from place to place, but our virtual travels will place demands on us that we are just beginning to understand.
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 Charging Around [1:30m]: Play Now | Play in Popup | Download