Sluggishness Certainly Stays

America's Jobs Report: Still Sluggish

The Economist

October 22, 2013

By G.I.

Last fall, the Federal Reserve began open-ended bond buying with newly printed money in hop to generate growth in the larbour market. This seemed to have been successful, until last fall. Data suggests that recently, there is no explanation for the amount of non-farm payroll employment. Non-farm payroll employment rose 148,00 in September from August, which was much less than expected. This was the second weak reading in a row, and vindicates the Fed's decision not to dial back its $85 billion. 

The revisions to prior payrolls were upsetting to the public. A large amount of September's gains were in state and local employment. Normally, this data would be positive, however, recently this has been such a powerful headwind for the economy and has had negative affects. A decrease in private job creation has also decreased the pickup in government hiring. The monthly average of private job creation is 129,000 in the last three months from 232,000 last December. 

One positive to this situation is the decline in the unemployment rate to 7.2%, a tiny decrease from 7.3%, a near-five year low. Lower participation, which means fewer unemployed, are recorded as looking for work, rather than higher employment.The "non-employment" rate, which is simply everyone not working as a share of the civilian, non-institutional population, has remained at 41.4%.This is not primarily due to a weak economy; the number of people not in the labour force who want a job has actually fallen 9% since December, to 6.2m. The people who are leaving the labour force do not want to work. 

The reason that the labour market has dropped is very unclear. Other, less comprehensive information is more upbeat: unemployment insurance claims through September had decreased. Surveys of hiring were also positive, even though they took a plunge during the government shutdown. The overall rise in mortgage rates since the Spring has caused housing to decrease dramatically. However, construction employment rose 20,000 in September. 

Before today's report, the Fed was not willing to decrease bond purchases ($85 billion a month.) Even though officials appear maleable, officials' outlook, they claim, is for improvement. However, the follow-through is hard to determine before it actually occurs, in December. The government shutdown reduced employment overall for October. Also, an index compiled by Gallup suggests private job creation also slowed that month.  

Fed officials have often been unable to explain the criteria for beginning and ending QE, but one thing is clear: they had hoped the labour market would be gaining, not losing, steam by now. Concluding, the exit seems no clearer than when this round of QE started a year ago.