MacroScope

Fear the Septaper

Credit to Barclays economists for coining the term ‘Septaper’

A solid U.S. employment report for June appears to have cemented market expectations that the Fed will begin to reduce the pace of its bond-buying stimulus in September.  Average employment growth for the last six months is now officially above 200,000 per month.

Never mind that, even at this rate, it would take another 11 months for the job market to reach its pre-recession levels – and that’s not counting the population growth since then.

John Brady, managing director at R.J. O’Brian & Associates in Chicago, nails the market’s sentiment:

This number keeps the Fed tapering at the September FOMC on track. The market is reacting with the idea that the Fed will begin tapering in September.

Cragi Dismuke, chief economic strategist at Vining Sparks in Memphis, Tennessee adds:

U.S. minimum wage hike would offer short-term economic stimulus: Chicago Fed

President Barack Obama proposed a hike in the U.S. minimum wage during his State of the Union Address in February. Since then, we haven’t really heard very much about the proposal. That’s too bad for a U.S. economy that could still use a bit of a boost, according to new research.

A paper from the Chicago Fed finds that, while there might be little impact on long-term growth prospects from a higher minimum wage, the measure could add as much as 0.3 percentage point to gross domestic product in the short-run. That’s not insignificant for an economy that expanded at a soft annualized rate of just 1.1 percent over the last two quarters.

This is how the authors summarize their findings:

A federal minimum wage hike would boost the real income and spending of minimum wage households. The impact could be sufficient to offset increasing  consumer prices and declining real spending by most non-minimum-wage households and, therefore, lead to an increase in aggregate household spending. The authors calculate that a $1.75 hike in the hourly federal minimum wage could increase the level of real gross domestic product (GDP) by up to 0.3 percentage points in the near term, but with virtually no effect in the long term.

Oscar Wilde and the euro zone

To paraphrase Oscar Wilde, to lose one looks like misfortune, to lose two smacks of carelessness.
Portugal’s government has been plunged into crisis with the foreign minister resigning a day after the finance minister did, the latter complaining that the public would not tolerate his austerity drive.

Prime Minister Passos Coelho has refused to accept the second departure, essentially putting the government’s survival in the gift of Foreign Minister Paulo Portas, who objected to Treasury Secretary Maria Luis Albuquerque replacing Finance Minister Vitor Gaspar. Portas could pull his rightist CDS-PP party out of the coalition government, which would rob it of a majority. The opposition is calling for early elections, the premier says not.

All this is happening with the next review of Portugal’s bailout progress by its EU and IMF lenders just two weeks away and with euro zone borrowing costs already firmly on the rise again. Portuguese yields lurched higher after Portas’ resignation and doubtless will continue in that direction today.

Broken (record) jobless data: Euro zone unemployment stuck at all-time high

Surprise! Euro zone unemployment was stuck at record high of 12.2 percent in May, with the number of jobless quickly climbing towards 20 million. Still, as accustomed to grim job market headlines from Europe as the world has become, it is worth perusing through the Eurostat release for some of the nuances in the figures.

For one thing, as Matthew Phillips notes, Spain’s unemployment crisis is now officially more dire than Greece’s – and that’s saying something.

Also, the figures remind us just how disparate conditions are across different parts of the currency union. While Spanish and Greek unemployment is hovering just below 27 percent, the jobless rate in Austria, the region’s lowest, is 4.7 percent.

What’s a Fed to do? Taper talk persists despite missed jobs, inflation targets

As the Federal Reserve meets this week, unemployment is still too high and inflation remains, well, too low. That makes some investors wonder why policymakers are talking about curtailing their asset-buying stimulus plan. True, job growth has averaged a solid 172,000 net new positions per month over the last year, going at least some way to meeting the Fed’s criteria of substantial improvement for halting bond purchases.

So, either policymakers see brighter skies ahead or they want to get out of QE3 for other reasons they may rather not air too publicly: worries about efficacy or possible financial market bubbles.

“I don’t think the data dependent emphasis is the only ball the Fed is focusing on when mulling over the pace and extent of asset purchases,” says Thomas Lam, chief economist at OSK-DSG.

“This was really eye-opening for me”: Fed’s Raskin shocked at low quality of work at local job fair

The first portion of Federal Reserve Governor Sarah Bloom Raskin’s remarks to the Roosevelt Institute earlier this month were pretty standard central bank fodder. Raskin, on the dovish side of Fed monetary leanings, said U.S. unemployment was still too high, and far more progress was needed in bringing a somnolent job market back to life.

But the second half of her comments offered an unusually personal look at one Fed official’s dismay with the country’s economic situation. Stumbling into a job fair near her house, Raskin was stunned by the generally low quality of positions available. In her own words:

I became interested in this question of quality somewhat by accident. I did something atypical one day. I decided on my way into work I would stop at a jobs fair. There was a jobs fair at a local community college close to my home and I thought, I’m going to, you know, instead of pounding through all this heavy data that we typically look at at the board of governors, let me just go into this job fair. It turned out to be a really interesting morning, I have to say.

What’s in a (trend payrolls) number? The Chicago Fed paper that shook the markets, ever so slightly

      

Ann Saphir contributed to this post

The apparent conclusion from one of the most dovish regional Federal Reserve banks was rather surprising: The economy may actually need much smaller monthly job growth, of around 80,000 or less, in coming years in order for the jobless rate to keep moving lower. The immediate policy implication, it might seem, is that the U.S. central bank may have to tighten monetary policy much sooner than previously thought.

Andrew Brenner of National Alliance remarked that, while the report should be taken with a grain of salt, “this translates to lowering the bar to QE tapering.”

Right? Not necessarily, writes Goldman Sachs economist Jan Hatzius. Here’s why:

No relief in sight for millions of unemployed Americans: Cleveland Fed report

The new normal is getting old. And when it comes to America’s stuttering employment market, it’s not going to get much better any time soon, according to a new report from the Cleveland Fed.

The U.S. economy created 175,000 new jobs in May, while the jobless rate rose slightly. It was a neither-here-nor-there sort of report. In the Labor Department’s own words: Both “the number of unemployed persons, at 11.8 million, and the unemployment rate, at 7.6 percent, were essentially unchanged in May.” 

Unfortunately, this anemic pattern is likely to be long-lasting, write Cleveland Fed economists Mark Schweitzer and Murat Tasci.

Forecasters more accurate on U.S. payrolls: perhaps a good sign

Financial and economic forecasters have long been the punching bag of punters and traders for making spectacularly wrong calls. But a clutch of economists looked exceptionally good on Friday. Nine of them, or about 10 percent of the latest Reuters Polls sample on U.S. non-farm payrolls, got the net number of new jobs created in May exactly right at 175,000. And a whole lot of them came very close.

For a survey of companies conducted by the Bureau of Labor Statistics that itself has a margin of error of plus or minus 100,000 this is no small achievement – or stroke of luck.

But it may also be a good sign that jobs growth is getting more steady, a much more stable target to try and pin down each month. The range of forecasts provided – from 125,000 jobs to 210,000 – was also the narrowest so far this year.

Inflation, not jobs, may hold key to Fed exit

It’s that time of the month again: Wall Street is anxiously awaiting the monthly employment figures – less because of its interest in job creation and more because of what the numbers will mean for the Federal Reserve’s unconventional stimulus policies.

As one money manager put it all too candidly: “Bad news is good news in this market lately because it keeps the Fed buying bonds and interest rates low.”

Given that the Fed is the closest thing the world has to a global central bank, what happens at the Federal Open Market Committee doesn’t often stay in the Federal Open Market Committee. Indeed, emerging markets have become increasingly volatile since Fed Chairman Ben Bernanke said policymakers might curtail the pace of asset buys in coming months.