After a “significantly better than expected” ADP employment report, Goldman Sachs has raised its estimate to 200,000 for the U.S. Labor Department’s December nonfarm payroll report due Friday, the firm’s team of economists said. Separately, initial jobless claims were higher than expected for the most recent week, but the Labor Department reported some holiday distortions, the economists noted. “Overall, the data since our preliminary estimate last Friday have been strong enough to prompt us to revise up our forecast for nonfarm payrolls to 200,000,” the economists concluded.
The U.S. jobless rate, currently at 7.7 percent, remains elevated by historical standards. But it has fallen sharply from a peak of 10 percent in October 2009. However, that decline could soon grind to a halt, according to a recent paper from the San Francisco Federal Reserve.
Updates with Fed decision
The Federal Reserve on Wednesday took the unprecedented step of tying its low rate policy directly to unemployment, saying it will keep rates near rock bottom until the jobless rate falls to 6.5 percent. That’s as long as inflation, the other key parameter of policy, does not exceed 2.5 percent.
As Federal Reserve officials debate whether to use thresholds for inflation and joblessness to guide monetary policy, Friday’s jobs report may be a cautionary tale. The idea of thresholds is to pick markers for potential policy change – an unemployment rate of 6.5 percent, for instance, as a guidepost for when the central bank might begin to raise rates – so that the market has a better idea of where Fed policy is headed. As the unemployment rate nears that level, the theory goes, investors will gradually start to price in tightening; if the unemployment rate rises again, they’ll price it out.
Federal Reserve officials have linked their open-ended stimulus program to substantial improvement in the labor market. So now, it’s up to Fed watchers to hone in on a definition of substantial, no small task in a world of multiple and often conflicting indicators on the job market.
As traders and economists hash over the sharp and unexpected drop in the U.S.jobless rate to 7.8 percent, they might do well to review some key data points that offered early hints that at least some households were seeing improvement in the labor market. Wall Street analysts in a Reuters poll had forecast a rise in the unemployment rate to 8.2 percent.
Spain will not seek aid imminently, says Prime Minister Mariano Rajoy. And by imminently, he means, not this weekend. Just the latest twist in a European crisis plot that now sees Spain as its primary actor.
Will the U.S. economy continue coasting along at a slow but steady clip or does it actually risk tipping into a new recession? Tom Porcelli, economist at RBC Capital, says he’s concerned about a new trough from a little-watched Philadelphia Fed survey of coincident indicators.
The U.S. labor market has been adding jobs for two-and-a-half years, helping bring down the jobless rate from a peak of 10 percent in late 2009 to the current 8.1 percent rate. But recently, job growth has slowed to under 100,000 per month – not enough to keep the jobless rate on a downward path. Heidi Shierholz at the liberal Economic Policy Institute in Washington says this leaves the U.S. economy well short of achieving its full capacity: