The Employment Report: Why Is the Stock Market Rising?
The employment report came out this morning, and it's not good news. The unemployment rate remained at 9.6%, nonfarm payroll employment fell by 95,000, government employment fell by 159,000, and private sector employment was up 64,000. The 64,000 increase, however, is far short of the 100,000-150,000 we need per month just to keep up with population growth, and we need even more job growth than that to reabsorb the millions who are presently unemployed. Job growth of several hundred thousand per month is needed. The 64,000 we saw last month is far from sufficient.
And there is more bad news. The broader unemployment rate, U6, which includes discouraged workers, involuntary part-time workers, and underemployed workers, increased to 17.1%. The WSJ explains:
The key to the rise in the broader unemployment rate was due to a 612,000 jump in the number of people employed part time but who would prefer full-time work. Meanwhile, the number of discouraged workers and those who classify themselves as "marginally attached" to the labor force also increased.
Those jumps were likely affected by a temporary end to extended unemployment benefits. Earlier this year, Congress let an extension of jobless benefits lapse. During that period people may have dropped out of the work force, and though many returned in August some were still coming back into the system last monthInterestingly, the stock market is currently rising on this news. While it's dangerous to interpret day to day swings in the market, and this should be taken in that light, it may be that this report is dismal enough to raise expectations that both monetary and fiscal policy authorities will take action that will try to spur employment and, in the process, help businesses.
Is this expectation correct? Labor markets clearly need more help, but will they get it?
I expect this will help the Fed move to a second round of quantitative easing, so I do expect something from the monetary policy authorities, though not enough. Instead of shock and awe, we are likely to get incrementalism, but incremental expansion of the Fed's balance sheet is unlikely to provide enough help. Fiscal policy could help, particularly if the plans for a new infrastructure spending were in place already, but there are no plans presently, and more help is unlikely. If we see anything from fiscal policy, it won't be until after the election, and if Republicans take over the House or the Senate the best we can hope for is more tax cuts. But tax cuts have not been very effective to date (they were 40% of the stimulus package), and, except for their balance sheet rebuilding properties, they would be unlikely to do much now.
So, if the stock market movements are, in fact, due to optimism about help from policymakers, then it's an optimism I don't share. Fiscal policymakers in particular have dropped the ball with respect to helping with employment, and it looks like we are stuck with the prospects of a very slow recovery. It didn't have to be that way, but overly cautious policy based upon overly optimistic hopes for recovery, and unfounded fears of deficits and inflation, have prevented the policymakers from taking the action needed to turn things around.
[See also Calculated Risk, Free Exchange, Angry Bear, Robert Reich, Real Time Economics, Economix, Big Picture, Felix Salmon, Twenty Cent Paradigms, Macro View, WSJ, NY Times, FT.
