While watching President Obama talk about the jobs on The View—he should do more of that stuff, he's good at it— my other eye was taking in all the commentary on Wednesday's durable goods report. The latest news on durable goods orders is not encouraging, not just because it shows a monthly decline for June when we were hoping for a slight increase but because it suggests we could be facing new headwinds on the employment front. Here's the short form of the durable goods news:

New orders for manufactured durable goods in June decreased $2.0 billion or 1.0 percent to $190.5 billion, the U.S. Census Bureau announced today. This was the second consecutive monthly decrease and followed a 0.8 percent May decrease. Excluding transportation, new orders decreased 0.6 percent. Excluding defense, new orders decreased 0.7 percent. Transportation equipment, down four of the last five months, had the largest decrease, $1.1 billion or 2.4 percent to $45.9 billion. This was due to non-defense aircraft and parts, which decreased $1.8 billion.

The negative report, which also told us that durable goods inventories are up,  has import beyond the immediate news. As David Rosenberg at Gluskin Scheff points out, there is a tight correlation between durable goods orders and subsequent changes in employment. As the chart below shows,  the jobs payoff--or cost--from a change in durable goods orders comes roughly four months later, and it's a respectable (as in 82%) correlation. The recent downward turn in orders may quickly reverse, but if it doesn't we could see the dark line (nonfarm payolls) take a turn for the worse.

Of course, not all economists see this as troubling, and many think the durable goods report was fairly positive given that 'core' orders (i.e., non defense capital goods, exculuding aircraft) were up slightly. But the chart shows the correlation with the total number, not the core number. By the way, if you want to enlarge this chart, just click on it.

It is remarkable how sentiment has turned around on Europe from where we were less than three months ago. Back then, the euro was tanking, fears were escalating that the continent would suffer a series of sovereign debt defaults, and financial contagion raged out of control. My how things have changed. The governments of Spain and Portugal, the two countries (after Greece) that gave investors the most heartburn, have been successful at selling bonds on international markets, easing concerns about their solvency. The spreads between the yields on Spanish and Portuguese bonds and their benchmark German counterparts have narrowed, meaning investors see them as less risky than before. The euro has rebounded against the dollar. Growth is holding up better than many expected.

So is it crisis over? Clearly Europe has come back from the brink of something potentially very ugly. But I wouldn't make the mistake of unfurling the “Mission Accomplished” banner just yet. That's because the European debt crisis was just an outgrowth of deep, underlying problems within the Eurozone – problems that have yet to be addressed.

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The stock market is defying doomsayers and showing a good bit of resiliency over the past week. True, it's on low volume but the market is climbing nonetheless, rising 3.5% last week and then up about 1% on Monday. The Wall Street Journal even trumpeted the fact that the Dow is now in the black for the year--not sure whether this news warrants a cheery celebration or big roll of the eyes. Anyway, what's filling the market's sails is second quarter earnings. Sure, the 24% jump in new homes sales for June—not that big a surprise given that May was a horrible month—also helped, but it's those rapid fire earnings reports, mostly beating analysts' expectations, that are really powering the market.

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