sábado, 9 de noviembre de 2013

sábado, noviembre 09, 2013

Heard on the Street

Blurry Jobs Report Won't Let Fed Focus on Taper

By Justin Lahart

Nov. 8, 2013 2:06 p.m. ET
 
The big increase in jobs last month suggests the economy may be gaining significant strength. But the Federal Reserve will need more convincing.
 
The economy added 204,000 jobs in October, the Labor Department reported Friday. Economists, reckoning that the government shutdown would weigh on private employment (federal workers were counted as employed), expected a gain of just 120,000 jobs.
 
Two possibilities present themselves. One is that for all the theater, October's shutdown and debt-ceiling fracas didn't act as a drag on employment growth.

The other is that those things really did take away from employment growth, but that the job market's underlying strength more than offset them. There is evidence the second possibility might be the right one.
 
The last time the government shut down, in the mid-1990s, it did seem to weigh on private employment, suggesting this time there was a countervailing force. The unexpected strength seen in the Institute for Supply Management's October manufacturing and nonmanufacturing activity reports seems to bear that out.
 
Perhaps the effects of government spending cuts and tax increases that hit early this year, and which Morgan Stanley MS +2.51% Morgan Stanley  economists estimate cut 1.75 percentage points out of annualized gross-domestic-product growth over the past three quarters, have begun to fade.
 
But when the Fed thinks about the job market, its main focus is on how much slack there is. That is why it has said it is looking at the unemployment rate, rather than payroll growth, as a guide to when it will eventually raise rates.
 
The unemployment rate ticked up to 7.3% last month from 7.2% in September, but shutdown-related problems with administrating the survey it is based on rendered the October reading next to useless. The same is true of other important measures of slack, such as the labor-force participation rate and employment-to-population ratio, both of which the Fed is looking at.
 
And then there is inflation, which remains well below the Fed's 2% target. Also Friday, the Commerce Department reported that its index of prices excluding food and energy items (the Fed's preferred measure) was only 1.2% above its year-earlier level. Such low inflation is a concern for the Fed, in part because if the economy suffered a sudden shock it could slip into deflation, a difficult trap to get out of.
 
Given the muddied nature of the unemployment data, as well as the low inflation reading, the Fed's decision to start reining in its bond-buying program still looks like a 2014 event. That said, an unambiguously strong November jobs report early next month could put tapering at the Fed's December meeting back on the table.
 
For stock investors, this prospect isn't something to fear, rather evidence that the economy is finally escaping the doldrums would be something to cheer. Bond investors, on the other hand, might have some hard thinking to do.


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