Economic Data out of the US today claims that Payrolls increased more than forecast in February and the Unemployment rate unexpectedly fell to a four-year low of 7.7% – since December of 2008. Is that a sign that employers in the US were undaunted by the budget impasse in Washington? Hell no! Remember today’s Unemployment data reflects of the period before the budget cuts, known as sequestration which came into effect only from March 1. The spending cuts that have now come into effect will have their effect on Unemployment in the next set of numbers – if not tampered with. Washington region relies heavily on federal govt spending for jobs & growth. Economic vulnerability has been exposed by budget cuts brought on by the sequestration. A decade of expanding federal largess shielded Washington area from worst effects of the financial crisis & slow recovery. Growth & job creation (If any) should both be excruciatingly slow in 2013 in the US, largely because of sequestration. The numbers seen today do not denote the future, only reflect what’s past. Employment numbers are deemed to have shot up 236,000 last month after a revised 119,000 gain in January which was smaller than first estimated at 157,000, obviously. Revisions subtracted a total of 15,000 jobs to the employment count in December and January. Payroll numbers were much better than the 165,000 expected.
The Unemployment reduction:
The Unemployment rate, derived from a separate survey of households, was forecast to hold at 7.9%. Construction Hiring jumped by the most in almost six years & is supposed to have helped in bringing unemployment lower. A decisive turnaround in the housing market and rebuilding on the East Coast after the destruction by Super-storm Sandy in late October is boosting jobs at construction sites. Today’s report showed factories added 14,000 workers in February, compared with a projected 9,000 advance and following a 12,000 increase in the previous month. Government payrolls decreased by 10,000 last month. Unemployment at government agencies and the companies they contract will be further tested in 2013. At the start of the month, Congress let $85 billion in across-the-board budget cuts, known as sequestration; proceed because it couldn’t compromise on deficit reduction. “They were great numbers relative to where we’ve been, but the question is whether they were too good, too fast in the eyes of the Fed,” Ryan Larson, the Chicago-based head of U.S. equity trading at RBC Global Asset Management (U.S.) Inc., said by telephone. His firm oversees $250 billion. “While we continue to make all-time highs, it continues to be live by the Fed, die by the Fed.”
Zerohedge pointed out, “When it comes to government data, every silver lining has a cloud.”
Those who track the quality composition of the jobs, as opposed to just the quantity, will know that the part and full-time jobs breakdown has long been a major issue. And not unexpectedly, in February according to the Household Survey, the number of full-time jobs declined by 77K from 115,918 to 115,841. The offset: a jump in part-time workers which rose from 27,467 to 27,569, or 102K. Part-time jobs, for those who are unaware, are “jobs” only in the broadest of definitions. But the most surprising development in February from a quality standpoint was that the number of multiple job-holders rose by a massive 340K, which just happens to be a record. One wonders: how many actual people got new jobs, as opposed to how many qualified single individuals ended up getting more than one job in February in order to boost that much needed weekly income to sustainable levels.
US – The Economic engine of the world remains in Neutral:
“It is not possible to create jobs through monetary policy alone,” Dallas Fed President Richard Fisher said at a World Affairs Council of San Antonio event. “The U.S. remains the economic engine of the world … it’s not China, it’s not Europe, it’s the U.S., and the U.S. remains in neutral.” Fisher, repeating a well-worn analysis of the limits of the Fed’s super-easy monetary policies, said the U.S. central bank did not have the power to pull the economy from its standstill as long as U.S. lawmakers did not do their part, reported Reuters. “You know how horrid things are in Washington,” Fisher said. “We have provided fuel for an economic recovery because Congress and the executive have not provided the incentives for growth.” The U.S. central bank has kept interest rates at rock bottom for more than four years and is currently buying Treasury and mortgage bonds in an effort to keep longer-term borrowing costs low enough to spur spending and hiring. Yet Unemployment is relatively high, at 7.9%, and inflation remains stubbornly below the Fed’s 2% target, curtailing the boost that near-zero short-term interest rates can give the economy. Fisher, who does not vote on the Fed’s policy-setting committee this year, has been a vocal opponent of the Fed’s bond-buying program, saying it can do little as long as lawmakers do not address the nation’s debt problem and provide businesses with needed fiscal certainty. Fisher has questioned the bond-buying program’s effectiveness at keeping interest rates low, and on Wednesday gave partial credit for historically low U.S. interest rates to China’s massive purchases of U.S. debt. “They help us keep interest rates down and it is an expression of faith in the US Economy,” he said, referring to the Chinese.
Household Debt rises on (over) Confidence build-up:
Household Debt rose at a 2.5% annual rate in the fourth quarter, the US Federal Reserve said on Thursday & as reported by Reuters. It was the steepest gain since the first quarter of 2008 and only the third quarter since then in which debt levels rose. The United States is slowly recovering from a severe recession sparked by the crisis. Growth remains tepid and unemployment in January was a lofty 7.9%, but the Fed has taken aggressive steps to spur spending, investment and hiring. Home mortgage debt shrank at a 0.75% pace in the fourth quarter, the slowest rate of decline since early 2009. In addition, consumer debt rose at an annualized 6.5% pace, the biggest gain since the third quarter of 2007 and evidence of growing confidence among households. That said, total household debt stood at $12.83 trillion in the fourth quarter, well below the $13.83 trillion peak notched in early 2008 – so far. With almost the majority of western nations confident about inflation being under expectations & in-fact promoting Inflation to avoid deflation, this debt is bound to rise. The rise in Unemployment due to the spending cuts & simultaneous Inflation promotion will make a poisonous brew. The debt rise this time may be just what may be required to trigger a massive default explosion & end up in a prolonged period of recession. Will the Fed then be ready for a new set of QE again?