Updates
Time for updates, on the US and Japanese economies, and on Europe. This posting covers the US; tomorrow's will be about Japan and Europe.
Earlier this morning, the US Department of Labor released the September employment figures - at times, data that drive the markets - indicating continued, but below-trend, growth in new, non-farm jobs created (mild growth even when upward revisions to earlier months' data are considered). The unemployment rate fell, unexpectedly, to just below 8% for the first time in 4 years, an apparently significant improvement, especially in just one month. Readers are cautioned, however, that a closer look reveals that labor market fundamentals remain weak: the size of the labor force (the denominator of the unemployment rate calculation) is at a 31-year low in the United States, reflecting workers who have simply stopped looking for employment and therefore not counted. The Labor Department's so-called U-6 unemployment rate, which does incorporate these "discouraged" workers and the underemployed, registered 14.7% in September, and has barely moved from about 15% for over a year. September data, therefore, hardly signal the beginning of a strengthening labor market.
A more significant event this week in America was the surprisingly engaging performance of candidate Romney in the first Presidential debate, particularly when set against President Obama's ill-focused aura of issue fatigue. Post-debate political sentiment has shifted noticeably in Romney's favor. In the coming week, watch for the Obama team - intent on momentum recovery - to make much more than warranted from September's drop in the unemployment rate.
Related to employment matters, debate has re-emerged about both the efficacy and potential dangers of the Fed's QE3, its latest round of quantitative easing. (For a description, readers can refer to this writer's posting of September 14.) The efficacy argument revolves around whether a further lowering of interest rates (the immediate goal of QE) is akin to "pushing on a string", that is, can it stimulate stubbornly weak aggregate demand in the economy? This concern is valid - given that rates have been very low for sometime while economic recovery has remained tepid. But, given that recession in the US (and the rest of the world) still threatens, and that Washington fiscal gridlock persists, stimulus from monetary policy should be welcomed at this juncture - it's the only available option. Regarding the potential dangers of more quantitative easing, critics worry that, because such unprecedented stimulus will eventually need to be reduced then withdrawn, Fed officials will miss the point at which such an exit strategy should begin. As with so many past inflection points in the economy, the argument runs that inflation will re-ignite then accelerate, prompting a too-little, too-late shift to a contractionary monetary policy. As in past decades, another stop-start pattern would thus emerge. Here's this writer's view about this danger - the Fed under Governor Bernanke (a scholar of the 1930's Depression) is more than competent to at least estimate - if not pinpoint - the timing of an economic turning point. In any case, we aren't close to that yet, so the concern is academic, whereas the threat of another downturn is real.
Japanese and European recessions are real concerns too - more on this tomorrow.