By: Ari Goldstein
Given the recent government shutdown, the much-expected results of the unemployment rate, which were due Friday October 4th, were finally released on Tuesday October 22nd.
The numbers offer mixed feelings as to the health of the US economy. The unemployment rate dipped slightly from 7.3 percent to 7.2 percent but the economy only added 148,000 jobs. This number is disappointing after a promising start this year. From April through June, the economy was adding jobs at an average pace of 182,000 a month, and from January to March an average of 207,000.
“This unemployment report showed that the economy was in mediocre condition,” says Doug Handler, chief US economist at IHS Global Insight in Lexington, Mass. Economist view job growth under 200,000 a month as a stagnating economy, and anything more as a sign of a robust healthy growing one.
Yet Tuesday’s results bear some optimism. First, the slight dip to 7.2 percent is the lowest since November 2008 and a reduction of 2.8 percent from the peak of unemployment in November 2010.
Secondly, August revisions that added 24,000 jobs and caused a one percent drop in the unemployment rate, were somewhat distorted. The August results were not convincing when put into proportion to the labor force participation rate. The unemployment rate is calculated by dividing the number of employed workers, by the labor force, which is the population working or looking for work. The labor force participation rate fell to 63.2 percent, which means workers were either discouraged so stopped looking for work, or went into early retirement. The rate fell two percent from July’s 63.4 percent and is the lowest since 1978. September’s participation rate remained the same at 63.2 percent and still trickled down one percent, a sign that the reduction in the unemployment rate is from real jobs being created rather than the population leaving the job market.
Additionally, jobs created in September came from a broad range of high and low paid industries, which is reflective on the overall health of economy. Construction companies added 20,000, although employment in the industry is still down by one to two million of pre-crisis trend levels; it is a sign of a slowly recovering housing market. Wholesale trade rose by 16,000 compared to an average of 7,000 over the past year. Transportation, and warehousing added 23,000, retailers 21,000, and even in an era of tight fiscal budgets, state, and local governments added 29,000 education jobs.
Since the government shutdown, markets have been eagerly waiting for the unemployment rate for two and a half weeks and reacted indifferent to the news. The Dow Jones and S&P 500 increased by about .4 percent on Tuesday and only one percent to finish the week. Investors keep a tight watch on the unemployment rate knowing that the Federal Reserve Bank bond-buying program of $85-billion a month is tightly linked with its results, and won’t be tapered until the Fed is confident that the economy will continue growing, and unemployment reduced without the stimulus.
President Barack Obama’s recent nomination of easy-money advocate Janet Yellen as the next chairman of the Fed, along with current chairman Ben Bernanke’s promise to continue the bond-buying until unemployment reaches 7 percent, gives investors confidence that tapering of the program won’t happen until at least the beginning of next year. The Fed was expected to begin tapering in September, but given weak results in the economy and unemployment rate, it did not. Wall Street analysts originally pushed the estimate to December, but now with September’s results out, they are pushing it back even further.
The Feds stimulus program “quantitative easing” or “printing money” as cynics would call it began in September 2012 and is meant to hold down long-term interest rates and stimulate growth. Low interest rates stimulate the economy by making it easy and cheap for businesses to borrow and increase demand for home sales with low mortgage rates.
The Fed’s reaction to the most recent reports is yet to be seen. The Fed is holding a conference on October 29-30; the conference is shadowed by October’s employment situation, which will be released November 8th. October’s results will stomach the short-term consequences of the government shutdown, which many economists say cut $25 billion out of the economy and will lower job gains by about 30,000. The much-anticipated meeting will clarify its policies going forward.