Last week: Consumers started the second half of 2010 a little more nervous than they were only a few short months earlier. Business executives have been more confident, but the degree of confidence didn’t change much as the summer began. To be sure, the impact of the stimulus efforts is diminishing. But more problematic, perhaps, is the very low level of pricing power, in what appears to be a prolonged period of weak demand. That is not a recipe for robust profit growth, or stock market rallies. This has been a very slow recovery and the pace could moderate further over the next few months.

The Coincident Economic Index, which tells us where the economy is right now, has been rising slowly. The Leading Economic Index has suggested this slow recovery could turn even slower in the second half of 2010. Was that still the signal in June?

THE SITUATION ABROAD

The evidence has been mounting that the global economy, while still expanding, is losing some steam. The drop in prices for energy, some food categories, and some metals (like iron and steel scrap) reflect a moderation in demand. Inventory rebuilding is certainly slower. And the more moderate pace in the vehicle market reflects consumer caution. These conditions could last through the second half of 2010. Even the news that the euro is back above 1.25 could be read as less opportunity for Europe to export its way out of its trouble. In all, the first half of the year was no joy ride. It will be even less so in the second half.

FACT OF THE WEEK

-1.3 percent. College graduates may have faced a slightly improved labor market this spring compared to last year’s graduating class. But the National Association of Colleges and Employers found that this year’s class found jobs that on average paid about $48,700 or 1.3 percent less than what last year’s class made last summer. Of course, the low number of new hires, relative to pre-recession classes, has an effect on these comparisons. Nevertheless, it does raise a few questions about the rate of return on a college education, at least for some households.

QUESTION OF THE WEEK

Why is the outlook for hiring so weak?

College graduates are facing weak demand this year, and lower starting salaries. In July, with almost 15 million out of work – half of them for more than six months – the economy opened up less than 100,000 new jobs. The level of frustration over the inability to find work resulted in a stream of discouraged job seekers who simply gave up.

There are three basic factors leading to these disturbing trends. First and foremost, the economy is simply not growing fast enough to quickly reduce the number of people without a job. Second, as pointed out earlier this summer, there is a greater mismatch in the kinds of jobs available and the skill set some of those currently unemployed possess. Third, there remains a long-term problem of the stickiness of wages. Simply put, it is expensive to hire someone. It is expensive to pay them, pay for their health insurance, and contribute to their retirement. With profit prospects low – given how slow the economy is operating and how difficult it is to raise prices – the expensive proposition of hiring means many firms, especially the smaller and younger companies, cannot afford to bring on more help right now. And that condition could continue, perhaps right through the first half of 2011.