06/07/2010 01:02 pm ET Updated May 25, 2011

June Jobs Story Looking Gory

We're now less than a month away from those marvelous July 4th fireworks. Judging what I hear from one sharp, perceptive economist who refuses to swallow Wall Street's round-the-clock economic hype and the administration's exuberant view of the present economy, we're also apt to see fireworks a bit earlier on July 2nd, but definitely not the kind you'll enjoy.

July 2nd is when we'll get this month's employment numbers, and economist Madeline Schnapp tells me that June's results, like May's -- which, as we all know, turned out to be a big disappointment and sent the Dow skidding 323 points on Friday -- will also be ugly and a lot worse.

After five consecutive months of job increases, Schnapp, the economics chief at West Coast liquidity tracker TrimTabs Research, partially owned by Goldman Sachs, sees a sharp reversal this month, with a loss of about 200,000 jobs, versus a lower-than-expected hire of 431,000 in May, 411,000 of which represented census workers.

She calculates that 300,000 temporary Census workers will be dropped this month from the labor force, while about 100,000 private sector jobs will be added.

Clearly, her outlook raises the issue that the 2010 economic recovery -- which most financial experts thought was a sure thing six months ago -- has suddenly become suspect,

Granted, 431,000 new jobs were added last month, but that figure ran more than 100,000 short of the general expectation of 540,000 new job creations. What's more, only 41,000 new jobs were added by the private sector.

Both Obama and Schnapp are at odds over the May showing. On Friday, the day the numbers were announced, the president reiterated what he said earlier in the week, namely the economy is getting stronger by the day. Schnapp's reaction: "What on earth is he smoking? That's a rear-view mirror approach. He's looking backward, not forward."

As she sees it, the May numbers put a damper on the economy. The slowdown in job growth, she says, is bad news for an economy that needs to replace more than eight million jobs lost during the recent recession. Without robust employment growth, she notes, it is unlikely the moderate pace of economic progress, that characterized the first half of the year, will continue.

Schnapp contends that an economic slowdown here is currently underway and will likely persist though the summer. Indicative of this, she points to the following:

--The winding down of the inventory building cycle, which has accounted for 70% of GDP growth over the past two quarters. This means consumer demand has to show up to buy all the goods on the shelves.

--Lackluster consumer demand.

--The winding down of government stimulus programs.

--The end of the tax refund season.

--Renewed weakness in the residential housing market.

--A reborn consumer who is choosing to save rather than spend.

--Non-lending by U.S. banks because they don't like the credit quality of people seeking loans.

--Reduced U.S. exports because of Europe's financial woes.

What does it all mean? That this year's GDP growth expectations are way too excessive, that Wall Street is dead wrong in its forecast of a robust 2010 recovery, and therefore the stock market is overbought and vulnerable, Schnapp says. The U.S. economy isn't contracting, she observes; its growth is just decelerating.

For each of the next two quarters, Wall Street is basically looking for 3.5% GDP growth. Schnapp figures an anemic 1.5% to 2% showing is closer to the mark.

That's bad news for job seekers, she points out, is that you need at least 3% GDP growth to absorb new entries into the work force.

Her bottom line: Any way you look at it, unless you're flying blind -- which is her obvious view of the president -- fasten your seat belts.

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