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CNB Economic Commentary: Sept 9

September 9, 2013

To: Everyone
From: Gregory S. MacKay, Senior Vice President & Chief Economist
Date: 09/06/13

The headlines today are that unemployment fell to 7.3% in August and 169,000 jobs were created last month. Unemployment one year ago was 8.1%. Since August 2012, the labor force has grown by 839,000 people, and the number of unemployed has fallen by 1,167,000. Thus the number of employed U.S. civilians has risen in one year by 2,006,000, or 167,000 a month. That’s not a bad number, and is indicative of the “modest” or “moderate” growth phase of the current economic expansion.

Normally these numbers would comfort us, but with the Fed considering the beginning of the end for bond purchases, we see a couple of issues that seem contradictory. First: job growth and wages. Earlier in the recovery, and in past expansions, job growth was regularly hitting 300,000 jobs a month. August’s number of 169,000 is close to the twelve month average, but far from anything that could be considered “robust”. Looking closer at the numbers, June and July job growth were revised downward, and the last three months of growth has averaged only 148,000. That suggests a possible weakness in the growth of consumer spending, and could produce a “soft patch” in GDP growth for the third quarter. Another way to look at job growth is to measure the duration of unemployment. The average duration one year ago was 38.7 weeks, while today it is 37.0 weeks. The median duration was 16.8 weeks a year ago, and is 16.4 weeks today. Neither of those numbers is showing much improvement.

Our second issue is the unemployment rate. The ongoing decline seems to suggest that the Fed could slow bond purchases soon, but we hesitate to concur with some writers. Last month, the labor force fell by 312,000 workers. Individuals “not in the labor force” (have no job and not looking for one; i.e. retired, in school, family responsibility) grew by 1.5 million in the past year. So the unemployment rate declined both because of more workers and less “non-workers not looking for work”. All these definitions may seem a bit strange, but the simple fact is that there is some slowing of labor force growth that helps accelerate the decline in unemployment.

With the FOMC meeting next week, it’s a little hard to look at this employment report as a positive indicator that the Fed will slow its bond purchases immediately. While progress has been made in the employment spectrum, it seems a bit early for the Fed to take its foot off the gas. Just this week, Minneapolis Fed President Kocherlakota suggested more stimulus, not less, is needed. President Kocherlakota does not currently vote on monetary policy. All the “experts” on the economy and Fed policy are split on the issue. We’ll get another peek at consumerism before next week’s meeting, as both July consumer credit and August retail sales come out early in the week. If you’re looking for a hedge bet, a small ($10 billion monthly) decline in the level of Fed bond purchases may be your best wager. We’ll stick to our opinion that it’s still a bit early for the Fed to slow its monetary accommodation.

Finally, as we do from time-to-time, we’ll publish the unemployment rates based on education so the younger generation has something to think about. Right now the unemployment rate for those with less than a high school diploma is 11.3%, those with a high school diploma is 7.6%, with some college is 6.1%, and those with a Bachelor’s degree or better is 3.5%.

Stock prices moved upward this week, even as economic releases were lukewarm and tensions over Syria mounted. At 2:20 p.m., for the week and year:

Dow Industrials 14998 +1.3% +14.4%


S&P 500 1663 1.8% +16.6%

Treasury bond yields jumped today, as Treasury traders felt the economic news confirmed a slowing of Fed purchases next week. Muni yields were fairly stable. 

  US Treasuries   Municipal Bonds  
  9/6/13 8/30/13 9/6/13 8/30/13
2 Year .46% .39% .40% .43%
5 Year 1.75% 1.62% 1.56% 1.56%
10 Year 2.92% 2.77% 3.03% 2.99%