The market quietly awaited the August jobs report Friday with premarket trading and futures markets remaining little unchanged ahead of the reading. For the last while, this has been the foremost important monthly event that provides investors with some sort of indication into the direction of US Federal Reserve policy, and thus anticipation for the future course of financial markets. As the Wall Street Journal put it quite succinctly, it’s “the ever-so-brief moment the interests of Wall Street, Washington, and Main Street are all aligned on one thing: Jobs.” Of course as events unfold in Syria and the thought of a US led intervention has investors holding off on returning to the stock markets following a directionless summer, but without a catastrophic blow up in the Middle East, Fed policy will continue to guide markets.
To be upfront and clear, expectations for a September taper are now diminishing, and for the Fed to delay by one month would not be unlikely. Prolonged easing would be a friend of the equity markets as the gains since 2009 have been somewhat exponential thanks to the US Fed’s assistance. But it is the fact that the ever so moderate gains in US job creation are pointing towards sustained, albeit, minute improvement for their labour market. In reality, their labour market still leaves much to be desired. To look into the sectors where job gains are posted, they belong to the retail, service, and hospitality industries. Traditionally, these are sectors where growth is not indicative of an expanding economy. It would be optimal to see the employment in construction and manufacturing moving significantly higher.
Labour force participation, which is in my opinion one of the foremost important numbers to follow, is at its lowest level since August of 1978. And what this translates to is that the percentage of Americans that make up their labour force is diminishing. More and more Americans thus require some form of Social Security or assistance from government as fewer working Americans contribute to these government programs. This is one of the many structural problems the US faces, and these are the pertinent budgetary issues that continue to be left unaddressed over the long term.
The other big shift in the labour market has to do with downward revisions made to the estimate of job creation in the months prior. As the US created 169 thousand jobs in August, both June and July were revised down by a total 74 thousand jobs. Instead of averaging 170 thousand jobs created in the last 3 months—that number sits closer to 145 thousand. That’s fairly significant considering it was the improving prospects of the US labour market that was influencing the US Fed to taper asset purchases come September.
The idea of a September taper is now getting increasingly difficult to call by the day. And again, this has to do with the two aforementioned factors. The first being the questionable jobs data that comes out on a monthly basis and spans from unimpressive to mediocre. The second is the uncertainty created around a US led intervention in Syria. This really gives no indication what might happen in the days ahead, but on one thing we can be certain is the US in Syria has investors wanting to hold gold; moreover, any delay beyond expectations in terms of tapering asset purchases will drive demand for gold.
An Aside: The debate surrounding who should be the next Chairman of the US Federal Reserve is getting increasingly more ridiculous by the day. The seven appointed governors (including the chairman) of the Fed board all vote in unison and it’s the conditions of the economy that warrant and determine policy over the CV of the candidate. Where someone might have more influence on economic policy would be as the Secretary of the Treasury Department or as the Director of the National Economic Council for President Obama designing a TARP bailout package (posts Larry Summers has held). Thus, it’s a little surprising this debate over the qualities of Larry Summers is just happening now.