Monetary policy is the mechanism through which the supply of money is controlled by monetary authorities. Monetary stimulus is the attempt by the monetary authority to manipulate money supply and generate growth. This can come in the form of lower interest rates, as well by lowering the reserve ration. The reserve ratio is the amount of assets that banks need to have on deposit with a central bank.
Well, the latest numbers related to job creation were recently released and to no one’s surprise, they were worse than expected.
For the month of September, job creation totaled 148,000, down from expectations of 180,000. (Source: Bureau of Labor Statistics, October 22, 2013.) While most people are simply writing off the latest data by saying that the U.S. government shutdown was the primary reason for the lack of job creation, I think there’s much more going on behind the scenes than simply a couple of weeks of not going to work.
This lack of job creation extends beyond simply the past few weeks; the trend over the past couple of years has remained far below potential. Even with the Federal Reserve throwing literally trillions of dollars into the U.S. economy for the past few years, there are no signs of life.
However, looking at the total level of job creation is not enough. Two other key figures you should pay attention to in addition to the total level of job creation are wages and hours worked. The Federal Reserve takes these additional metrics into account when trying to develop a picture of the economy.
The average hourly earnings increased by 0.1% in September, slightly below expectations of 0.2% from the previous month. The average hourly workweek did not change at 34.5 hours.
I don’t know about you, but seeing a mere 0.1% increase in my pay would not cause me to run out and spend more money or feel more secure about my financial future.
Before job creation takes place, you will usually notice hours increasing as employers use existing … Read More
It had been a long time since the Federal Reserve really surprised the markets. That is, before last week’s announcement that the central bank was going to keep its foot on the gas pedal—with the “pedal to the metal,” as the saying goes—leaving monetary stimulus in place.
As you probably know, at the last Federal Open Market Committee (FOMC) meeting, the Federal Reserve announced it would continue buying mortgage-backed securities worth $85.0 billion each month for the foreseeable future. Everyone was expecting some reduction in monetary stimulus; to have no change at all was quite a surprise.
But while the markets celebrated the news with new record highs, the fact that the Federal Reserve feels the need to continue pumping monetary stimulus into the economy actually worries me. Even with the stock markets near their highs, the bank’s interpretation of the current economic situation is certainly not as optimistic as many would’ve believed.
We have seen some data over the past couple months that indicate the pace of job hiring in the U.S. economy is starting to decelerate. At this point, the trend should have been for jobs growth to begin exceeding 200,000 per month. But while the level of job creation is still positive, it’s nowhere near the 200,000 mark, which is a concern.
The Federal Reserve is also worried about the continued drop in the participation rate. A person leaving the workforce is not a sign of economic strength. This is one reason that the Federal Reserve is continuing the monetary stimulus program, to continue enticing companies to expand and hire.
The problem, as I’ve stated in these … Read More