Will August job report propel the Fed into action?
Fed Chairman Ben Bernanke / United States Federal Reserve
(MoneyWatch) The unemployment rate fell to 8.1 percent in August and there were 96,000 nonfarm jobs created, according to a report from the Bureau of Labor Statistics. The number of jobs created, 103,000 in the private sector and a loss of 7,000 in government, was less than many analysts expected, and it reflects an economy that is growing fast enough to keep up with population growth -- the number of new jobs last month is roughly equal to new entrants to the labor force -- but it is not enough to make headway on our unemployment problem. The unemployment rate did fall slightly from last month's 8.3 percent, but that is due to a decline in the labor force and a fall in labor force participation rather than job growth. Much higher job growth than we saw last month will be needed to provide employment for the millions of unemployed.
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Will the Fed go big next week?
There were other signs of a stagnating labor market as well. The numbers from earlier months were revised down, average hourly earnings fell slightly, and the number of part-time workers, which often signals future labor market developments, declined. In addition manufacturing jobs -- one of the bright spots earlier in the year -- fell by 15,000.
How will the Federal Reserve react to this news? Ben Bernanke has indicated that the Fed will be watching the employment numbers closely, and if the labor market continues to struggle more action from the Fed is likely. There have been some positive signs in the economy lately, for example new claims for unemployment insurance have been relatively low, and consumer spending has been relative high. It seems clear, however, that the higher levels of growth we saw earlier in the year have faded and the economy, the labor market in particular, is stagnating. Thus, it also seems clear that the likelihood of the Fed doing more to stimulate the economy has increased, and is certainly entered the more likely than not range. Fear of inflation among some members of the Fed's monetary policy committee has been standing in the way of more action, but with both headline and core inflation numbers running near or below the Fed's target rate, those objections will be hard to sustain.
Chairman Bernanke has also emphasized in recent speeches that the economy could use more help from fiscal policymakers, but with the election on its way and with the severe political gridlock in Congress, the chances of more help from fiscal policy, either from tax cuts or more spending, is very, very low. The Fed knows this -- if the Fed doesn't intervene then there will be no help for the economy at all -- and that's another reason to expect the Fed to do more.
There is no certainty, of course, that the Fed will act at its next meeting (Sept. 12 - 13), and if strong economic data arrives between now and then the odds of Fed action drops dramatically. But the next meeting is not far away, so the picture is unlikely to change much and as of now the chances that the Fed will do more are very high.
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The ball is and has been, in Congress's court and because of politics, haven't done anything.
Their lack of action totally screws over the Treasury and the Fed.
Get it? There are only so many financial tricks and band-aids the Treasury and the Fed can do, especially the Fed. What can the Fed do besides lower or raise interest rates?
At some point, Congress (read House Republicans) HAS to get off their deadbeat @sses and do SOMETHING.
Still, why Obama decided to keep Bush's pick of Bernanke...
QE3 - The Search For Another Excuse to Prop Up The Fable - is only propping up, by taxpayers, for the same reasons as QE2, QE1, Bush's TARP (that Geithner was heavily involved in), the usual subsidy and handouts given to companies*, those same companies that gutted this country at our expense and now say we have to compete on a level playing field and without any bailouts for us, as we sit back and watch tepid economic reports, real wages dropping... at least Obama has talked about the MIDDLE CLASS, and issues like giving tax entitlements to companies that create jobs HERE. That's a lot more descriptive and substance-based than what his opponents have been saying...
* even those that offshored, so ask these chaps for more:
http://www.ontheissues.org/senate/Rick_Santorum.htm#Corporations
http://www.ontheissues.org/john_mccain.htm#Corporations
http://www.ontheissues.org/senate/mitch_mcconnell.htm#Corporations
http://www.ontheissues.org/senate/jim_demint.htm#Corporations
http://www.ontheissues.org/senate/Orrin_Hatch.htm#Corporations
http://www.issues2000.org/senate/Judd_Gregg.htm#Corporations
http://www.ontheissues.org/Senate/Chuck_Grassley.htm#Corporations
http://www.ontheissues.org/senate/john_cornyn.htm#Corporations
"Voted NO on repealing tax subsidy for companies which move US jobs offshore. (Mar 2005)"
Now, read that - giving taxpayer money to corporations that offshore (to communist countries). This means people in America are out of work as we're shipping jobs overseas. This also means we create a revenue problem because there are fewer working people to tax.
Obama voted 'YES' to repeal the anti-free market corporate handout issue...
And yet only Obama gets yelled at by people over economic issues and opinions. How odd... at least on this issue, it's clear Obama was doing more for us than his opponents obviously were...
Knowing all that, Obama is still quite the better choice. And I've cited sources reflecting well on him in the past, even while I also pointed out sources criticizing him as well. Unlike his opponents, some of us know the situation isn't so cut and dry and simplistic.
Lenders are not lending because they are afraid of risk, they need to increase capital ratios (meaning they need to get rid of loans already on their books), they need to take additional writeoffs that have been deferred, and bankers are using what capital they have to continue to trade agressively (look at BofA and JPM) as that is how they may squeeze out those last big bonuses before the music stops. Likewise borrowers are not borrowing because the don't want more risk and they don't know what their costs will be (for production inputs, employee costs especially health care, potential tax increases, new regulatory burdens, etc.) going forward.
QEIII may be necessary for the banks to remain liquid enough to avoid failure, and to buy up unwanted US government debt, but that will not create jobs. I am afraid Professsor Thoma's post above, written in the softened phraseology currently popular with Keynesians that are beginning to realize how close to economic catastrophy we are coming, does not do justice to the reality of the labor report. Let me make it simple...it is a disaster that is a harbinger of dramatic economic turbulence likely soon to come.