If you subtract government employment from the July jobs numbers (to correct for the distortion of census hiring and firing), then you find that the private sector of the U.S. economy has created jobs at about a 1% annual rate in the past six months. This is the same answer you get regardless of whether you look at the household survey or the establishment survey of jobs, so I think this is a number you can have confidence in. With average hourly earnings and weekly hours coming in somewhat above expectations, I think the jobs news was somewhat positive on balance, but it did fall short of anything impressive.
This rate of growth is unlikely to bring down the unemployment rate from its current 9.5%, because the U.S. labor force tends to grow about 1% per year just due to population growth. So unemployment is almost guaranteed to be quite high come November, and this is going to be bad news for the Democrats.
But if jobs continue to grow at 1% and productivity going forward equals its long-term historic average of about 2%, then these numbers added together give you real economic growth of 3%. I think we can do a bit better than that, so I'm sticking with my expectation that growth will be 3-4%. This is not much to cheer about, but it's better than the 2% or so that the "new-normal" crowd is expecting.
Still, numbers like these mean that politicians are going to be desperate to "do something" to make things better. Unfortunately for the party in power, it's very late in the game to make changes that will show up convincingly in the next three months. A modestly growing economy and high unemployment are essentially baked in the cake for the rest of the year no matter what kind of legislation gets passed between now and the elections.
So the important changes on the margin to look for are in the policy area. If Congress decides to only do more of the same (e.g., more transfer payments, more handouts for special interests), then the market is going to be disappointed because the economic fundamentals are unlikely to improve. The $1 trillion that was spent last year on "stimulus" was never likely to help the economy, and I actually think it has been a major factor in retarding growth. Taking money from those that are working and giving it to those that aren't working simply can't make the economy bigger. You have to do things that encourage people to work and invest more.
If policy discussions instead turn (as they appear to be doing) to things that can positively impact incentives (e.g., extending the Bush tax cuts, cutting spending programs, cutting corporate taxes, and not raising tax rates on capital significantly), then there is reason to be optimistic. I still hold out hope for the latter, and in the meantime I think the economy is doing somewhat better than most observers give it credit for, so I remain optimistic.