At the conclusion of the Federal Reserve's Open Market committee, on Wednesday, the FOMC,.in particular the doves won with a stay, as predicted of raising interest rates, with the possibility coming much closer to December than the hawks wanted. All of which was in keeping with the chair’s oft spoken desires, when conditions were met; meaning a stronger climb to employment and a near certainty of its target goal of 2 percent.
In their “statement,Reuters reported the Fed's increasing confidence that prices were moving higher was reflected in its view that "inflation has increased somewhat since earlier this year" and the removal of its previous reference to inflation remaining low in the near term.”
They also said, to a waiting world, in part, "The committee judges that the case for an increase in the federal funds rate has continued to strengthen but decided, for the time being, to wait for some further evidence of continued progress toward its objectives.”
The economy climbing to a 2.9 percent growth, in the third quarter, is also an encouraging sign, but many observers and economists had noted that Yellen was not to be moved, from straying outside the traditional parameters. Instead,she was going to go strictly by the book, in leading the Committee to any increase this month, despite some of her more hawkish members such as Esther George of Kansas CIty and Loretta Mester of Colorado, both of whom dissented.
There are also some economists who feel that 2017 could show two increases, but very small ones, perhaps even smaller than the much ballyhooed 0.25 percent. In fact, Richard Clarida, global strategic advisor at Pimco said, "The economy itself probably could adjust [to more than two hikes], but when you have the impact on the dollar and on other parts of the global economy, that does limit the Fed's lift-off.”
There is also room for gauging the rate through the vehicle of the neutral federal funds rate: too low a target can cause too much liquidity and overstimulate an aggregate demand, and too high would result in “undue pressure on liquidity, unnecessarily high market interest rates and slower than desired economic activity,” says the Federal Reserve Bankof St. Louis in a position paper.
Helping, others say, to move the needle was Friday’s October Jobs Report which showed 161,000 jobs added to the nation’s economy, and which now makes for months of strong job growth; with the added, and much needed, bonus of wage growth from 8 cents in September to 10 cents in October, now creating an average of $25.92 per month. The resulting increase in buying power should be seen in the stores, especially in the upcoming Christmas holiday season.
Wages, once a worrisome low, have now increased to 2.8 percent over the past year. The Wall Street Journal reported that “The 2.8% rise in average hourly earnings was the single best number since June 2009, according to Lindsey Group's Peter Boockvar.
"It was encouraging to see the wage growth from an employee perspective," he wrote. On the other hand, there is a clear slowdown in monthly hiring, he noted, and "we expect to see corporate profit margins to continue to compress because of rising wages."
“Much of that spending was on higher-priced items, including cars and homes. Auto sales are running close to last year's record high of more than 17 million. And while home sales have leveled off this year, they have done so at a nearly healthy level of 5.5 million,” noted Crain’s Chicago.
While economists had predicted 175,000 new jobs, the numbers still give increased attention to the economy, and while not robust (it is at the slowest rate since the end of World War II) they suggest that the U.S. could approach full employment, say some, if increases continue. One mitigating factor is labor force participation, which changed very little over previous months to 62.8 percent..
There are still concerns that the sluggish pace is one to be concerned about, especially with upward revisions for the month of August, from 167,000 to 176,000; and for September from 156,000 to 191,000.
“Those upward revisions may actually be worrisome indicators because they suggest the summer's hiring surge is over” and "The October jobs report is much weaker than recent months, and reflects a sluggish, and maybe faltering recovery," said Michael Hicks, director of Ball State University's Center for Business and Economic Research.”
He sees the net gains not coming from one individual holding a single job, but from a lone worker holding more than one job. But, he seems to be alone in his thought as most see light in the report due to wage growth.
"The really good news in the past couple of months has been the acceleration in wage inflation," Nariman Behravesh, chief economist for IHS Markit, said in his review of October's data. "This means that the tightening in the labor market is finally beginning to benefit workers — and will support stable consumer spending growth."
Also optimistic is Thomas Perez, Labor Secretary, who told NPR, "Workers deserve a raise," he said. "They've been looking for this raise for some time and we're seeing sustained evidence that they're getting that raise."
The best bet for an increase is December with most coming in at 80 percent, which is in keeping with the Yellen philosophy and the Journal quoted Paul Ashworth of Capital Economics: "The solid gain in employment and the acceleration in average hourly earnings growth in October will increase expectations that the Fed will hike interest rates in December (assuming that the election doesn’t throw a spanner in the works.)"
The election is very much on the minds of the Committee, and market watchers and had investors selling short and buying long, and 10 year treasuries were selling at 1.821% after the report was released.
With both contenders for the White House anxious to capitalize on the report it is noteworthy to show who were the leaders last month. Once again professional services came in leading the list adding 43,000 jobs, followed by financial services at 14,000, and computer services at 8,000. Yet, caution, say some should forestall any foregone conclusions.
“Within those categories, though, the picture gets a little murkier. A lot of the jobs don't appear to be very high-paying. That first category, professional and business services, is a broad catch-all bin. Some of the jobs are high-paying, but temp jobs are also included here. The single largest gains within it, 19,700 jobs, came in "administrative and support services," itself a sub category of administrative and waste services, noted Bloomberg News.
On a final note, many areas stayed the same: manufacturing, construction and mining, remained low, or about the same, and the one outlier, was retail which shed 1,100 jobs not a figure that bodes well for Christmas, but could be adjusted upwards in light of seasonal hires, and more consumer money to spend.
While there were some disappointments, they were minor, and the steady, if not spectacular growth gives the Feds ample room for maneuvering a rate increase; something that retirees, investors and pension trustees would welcome.
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