Following Jobs Report, Fed Likely to Stimulate Economy Further
The Bureau of Labor reported Friday that payroll employment fell by a larger than expected 95,000 in September, while private sector employment increased by a meager 64,000 jobs. What do these numbers indicate about the health of the economy and what the Federal Reserve might do? Diane Swonk fills us in.
--Nelson Wang
Unemployment Rate Holds Steady
Some 77,000 temporary Census workers were cut from government payrolls and almost as many jobs were cut by state and local governments. Private sector employment increased less than most had hoped, and not far enough away from zero to make it statistically significant. The unemployment rate held at 9.6 percent, which was better than expected. Much of the "stabilization" in the unemployment rate, however, could be attributed to an increase in those who have stopped looking for a job or have opted to take part-time work instead of full-time employment in order to be employed at all.
Revisions to Earlier Data
Moreover, preliminary revisions to data dating back to early 2009 suggest that the recovery was even weaker than initially reported. It looks like 366,000 more people than was previously reported lost their jobs, and the last revision, which revised the payroll estimate for the recession down by a record breaking 824,000 jobs. This is no surprise to those still looking for a job almost two years after job losses soared at the height of the financial crisis, and will fuel the debate over the role that fiscal stimulus played in preserving jobs in 2009.
Impact of the Stimulus Package
Republicans will argue that the stimulus was a waste and did nothing, while Democrats will argue that it was critical to saving jobs that would have otherwise been lost. Reality is somewhere in between. I fully believe that a stimulus package was absolutely necessary. That said, I am disgusted that a lame-duck President and Congress refused to act with a more targeted and less political package (read: more efficient) when they were asked to provide one by Fed Chairman Ben Bernanke in November 2008. They dragged their feet, lost valuable time, and let it get much more politicized than was necessary.
Some Positive Signs
That said, all of today's news is not bad. Service sector jobs, most notably temporary hires, all picked up slightly, which tend to portend stronger hiring going forward. Of course, we have seen that occur already during this recovery, only to be reversed at a later date.
Fed to Start Buying Securities
Nothing in today's data changes the reality of how painful this economy is. Moreover, any re-acceleration that we see in growth in the near-term will not be enough to make many of us feel much better about where we are at. Hence, the Fed will act to stimulate further, starting at its next meeting in November. They will likely start by incrementally buying more Treasury bonds and then switch into mortgage-backed securities. How much will they buy? I was shocked to hear another trillion dollars worth by friends at the Fed a few weeks ago. To hear former Fed Governor Larry Meyer, who is extremely well connected to his old colleagues at the Fed, estimate that the Fed could buy $1.5 trillion was even more of a shock, but not out of the range of possibilities.
Diane Swonk, chief economist at Mesirow Financial, talks to CBS MoneyWatch twice a week about the day's top economic news and developments. Her responses are edited for clarity and length.
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