Dollars and Sense: Markets shrug off Greek drama

Greece rejects austerity measures. More than 61 percent of Greeks voted on Sunday to reject austerity measures set forth by the International Monetary Fund as a condition for deferring current debt payments and negotiating future agreements. Though the vote was an overwhelming majority, they might want a do-over when they have to face the consequences. If the European Union nations remain strong, Greek banks could start failing within days, and the Greek government might not be able to provide essential services or make the pension payments the Greek people said they didn’t want to give up. Most global markets were down in early trading on Monday, though not much. The consensus is that this vote is going to hurt Greece worse than it hurts the rest of the world.

Unemployment rate drops. The unemployment report for June came out Thursday, a day early because of the Independence Day holiday, and it caused a bit of extra analysis. It showed unemployment had fallen to 5.3 percent, which in years past would have been good news. Some economists say when we get in the 5 percent range, the country is very near full employment, since some people are going to be unemployed voluntarily and others just temporarily between jobs.

But it may not be good news. So why no celebrating over this report? First, the average hourly earnings were unchanged, making the year-on-year increase a paltry 2 percent. Analysts have been hoping for stronger wage gains because that would signal a tightening labor market. That’s not really happening. Also, the number of people entering the job market was less than projected, coming in at 223,000. That’s not terrible, but it suggests an economy still stuck in low gear. Thirdly, the labor participation rate fell to 62.6 percent, its lowest level since 1977. The labor participation rate measures the number of people who have jobs compared to the number who could be working. That number surged far ahead of historical levels in the ’70s and ’80s as women entered the workforce, so this decline in the labor participation rate is not all bad news. It reflects in part a trend toward one parent staying at home to raise children. But that’s only a very small part of the picture. The big news in that percentage is the number of discouraged workers, and that number—not the unemployment rate itself—is starting to become the most watched part of these monthly reports.

Modestly positive reports elsewhere. The Institute for Supply Management said manufacturing activity increased in June, but barely. Its factory activity index rose less than a point to 53.5. Any number above 50 indicates growth, but 53.5 is very slow growth indeed. We did get more merger and acquisition news last week, mostly in the healthcare sector. Several of the presidential candidates are campaigning on a “repeal and replace” position when it comes to Obamacare. But Wall Street—after the Supreme Court ruling two weeks ago—is settling into the belief that Obamacare will be with us for years to come. This M&A activity in part reflects that belief. One notable example: Centent Corp. said it would buy the healthcare management company HealthNet for $6.3 billion.

The week ahead. The Independence Day holiday is creating something of a lull in volume and in deal announcements, but there’s still plenty of news. The Greek drama enters its final act, Puerto Rico is also in debt trouble, and we’ll likely hear more news from there this week. It’s a very light week for government reports, but we do get a trade balance report tomorrow. So a lot of Wall Streeters will be on vacation this week, but I’m guessing they will be keeping their laptops and smart phones close by, just in case.

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