Philadelphia, Pennsylvania – (StockNewsDesk) – 11/08/2014 — The US economy continued its steady gains as it continues to climb out of the hole and regain the lost output inflicted by the financial crisis and its aftermath. The October jobs report, released this morning, affirms that it remains on track despite worries that overseas weakness and pressure on exports are undermining the recovery. The stock market was flat, following the release.
Gain of 214,000 New Jobs but no Wage Growth
The headline number came in close to expectations, and the market liked the number. It wasn’t so high that it would potentially lead to an acceleration of the Federal Reserve’s timetable for interest rate hikes. Furthermore, it wasn’t low enough to create concern that the Fed had made a mistake in ending its expansion of the balance sheet to support the economy. The price action was mixed with some indices slightly up with others slightly down, however, given the strong rally going into the job number; the lack of profit taking is an important signal in its own way.
One ingredient of a strong economic recovery that continues to be absent is the lack of wage inflation. The payrolls number is indicating a tighter labor market, as more jobs are being added than people entering the workforce. However, this has yet to translate into wage growth, which is unusual at this point in the recovery. Wage growth is the true marker of an economy that is at full capacity, where workers have bargaining capacity.
Fuel for Doves and Hawks
This jobs report has evidence for both sides of the monetary divide to strengthen their arguments. Those dovish on monetary policy can point to the lack of wage inflation as an indication that there remains too much slack in the economy, besides the lack of overall inflation. Thus, the Fed has considerable room to be accommodating without any risks of inflation. The recent slide in commodity prices has killed the inflation argument for the next six months, at least.
The hawks, on the other hand, will seize the headline jobs number and the declining unemployment rate as evidence the labor market is healed. In fact, the current headline unemployment rate is below the target set by the Fed when it initiated the open-ended QE program.
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Validation of Federal Reserve and President Obama’s Policies
Given the strength of the US economy, especially when compared to the rest of the world, it is strange that more credit is not being attributed to the Federal Reserve and President Obama. While stock prices, unemployment, consumer spending, and manufacturing numbers are commensurate with a booming economy, public mood is definitely not. This is a strange phenomenon.
The recent elections were a huge wave as Republicans swept the ballots at every level of government and interpreted as voters voicing their disapproval of the President. Usually, the economy is the most important factor in an election, and in 2012 when Democrats put on a strong performance, unemployment was around 8%.
President Obama took office when the economy was in freefall with open speculation that a depression was imminent. Since then, the stock market has almost tripled, with consistent job gains for over four years. Despite some aggressive proposals, such as the stimulus and the Affordable Care Act, the budget shortfall has been halved.
Similarly, the Federal Reserve has become unpopular in recent years with the nonpartisan institution finding itself the target of political attacks on both sides of the aisle. The public perception is that the Federal Reserve does the bidding of large financial institutions and the 1%. However, credit should be given as the US economy has avoided any sort of inflationary outbreak, and growth has been strongest in the US compared to other major economies, such as Japan and the European Union. The October jobs report only affirms this notion.