Is Another Round of Quantitative Easing Coming?

Today was a special Jobs Day Tuesday as the Bureau of Labor Statistics released the September jobs report, which had been delayed due to the government shutdown. It wasn’t very good. Total non-farm payrolls increased by 148,000, which was less than the expected 180,000, while the unemployment rate dropped from 7.3% to 7.2%. The labor force participation rate remained unchanged at 63.2%. The July (-15,000) an August (+24,000) revisions combined for an increase of 9,000 jobs.This report was disappointing, but what’s even scarier is the trend lines.

Here’s the three-month moving average going back to the end of 2011:

3 month moving averageThere’s a pretty good chance that something is wrong with the way the BLS seasonally adjusts the numbers. Every winter has been much better than the following summer, but the trend is still not good. We’re into Obama’s second term and the economy is still barely growing. The reasons for this aren’t clear, but the government likely has a lot to do with it. Sequestration is terrible policy that is taking a chunk out of the economy at the wrong time. Austerity is the last thing we need right now. The expiration of the payroll tax cut at the start of this year is likely having some effect as well. And, of course, shutting down the government and risking a default is about as boneheaded as it gets. Instead of constructing policies looking to get the economy back going, the federal government (read: Republicans) have stood in its way.

The Federal Reserve has been concerned about fiscal policy and chairman Ben Bernanke has repeatedly emphasized that Congress needs to do more. Except that’s never going to happen. The question then is will the Fed do more? The economy is slowing down, not recovering. The FOMC had hinted at tapering in September, but pushed it off due to weak data and the impending fiscal fights. The market had assumed that the Fed was going to reduce its bond purchases regardless of the underlying data. By delaying the taper, the central bank attempted to regain its credibility and prove to investors that it’s data-dependent. Now, this is another test of that credibility.

This was a bad report and the economy is trending downwards. More fiscal fights loom and sequestration will be worse in 2014 than it was this year. Inflation is still running well below the Fed’s 2% target. If the Fed is really data-dependent, it will seriously think about making its policy even more accommodative either through QE4 or another mechanism.. The economy is no longer improving at a moderate pace. It’s slowing and there’s no chance that fiscal policy will help. It’s time for the Fed to pick up the slack.


Glimmer of Hope in Jobs Report

After a few days off last week, I’m late to the party on the June jobs report. The report was bland as expected, with no change in the unemployment rate. The economy added 80,000 jobs in the month, not enough to keep up with population growth and certainly not enough to get back to full employment anytime soon. Hopefully, it will finally force the Fed to announce QE3 or a higher inflation target.

However, there was one small nugget in the report that was positive: Wages are rising

Not just wages, but the average work week also increased in June. As Sarah Kliff noted:

Working a few more hours at a slightly higher wage, means workers see a growing paycheck. They might have more bargaining power to demand a higher salary, too.

The fact that wages have been consistently ticking upwards demonstrates that workers have seen higher salaries. This is a good sign. Companies are going to slightly increase wages and their employees’ hours before hiring new employees. While the recovery is slow, firms do not need to rehire workers, but over time, simply increasing wages and hours will not be enough. The economy is not at that point yet, but it is at least on its way.

Of course, the jobs numbers have shown this nearly every month so I’m just focusing on it now, because the rest of the job numbers were so bleak.