Larry Kudlow

After nine months of explosive monetary and fiscal stimulus, you’d think economic recovery would be upon us. But the June jobs report tells a much different story.

Non-farm payrolls fell by 467,000 as the unemployment rate edged up to 9.5 percent. This isn’t nearly as bad as the 700,000 monthly job losses of last winter, but it’s still a rough number. Equally disappointing is the household survey -- often a key turning-point signal since it captures the health of small businesses -- which has dropped 811,000 in the past two months.  

Donald Marron, a former senior economist with the Council of Economic Advisors and the CBO, calls it “a grim jobs report.” Marron, digging deep into the Labor Department Statistics, says the continued decline in hours worked by private-sector employees, now 7 percent over the past year, is especially troublesome. He writes, “The economy is thus losing jobs and, for the jobs that remain, is losing hours worked. That double-whammy is bad news for the economy.”

I would add that along with manufacturing and construction, the service sector continues to shed jobs, with a 244,000 drop in June. Inside that category, the important professional-and-business-services sector lost 118,000 jobs. The wage data is equally disconcerting. Over the past three months, average hourly earnings barely rose at 0.7 percent annually.

There are still some bright spots that strongly suggest the recession has bottomed. The ISM manufacturing report for June held a number of positives. Auto sales, retail sales, and home sales look to be bottoming. And May factory orders climbed as inventories crashed. So businesses, including automakers, may be increasing production in the months ahead.

In fact, even while second-quarter real GDP is expected to fall by 1 to 2 percent annually -- much better than the 6 percent declines of recent quarters -- the third quarter could show a small positive GDP score. Much smaller GDP subtraction from inventories, housing, and business cap-ex bodes statistically well for growth.

But there won’t be a real recovery until jobs start rising. The unemployment rate is a lagging indicator. But jobs are the most important coincident indicator of the economy. Until they turn around, nobody should expect anything resembling real economic growth.

Larry Kudlow

Lawrence Kudlow is host of CNBC’s “The Kudlow Report,” which airs nightly from 7 p.m. to 8 p.m.