The unemployment numbers were much as expected and the most solid news was that the employment participation rate increased to 63.9% to 63.7%, which didn’t cause the overall jobless rate to increase. It has been discussed in this BLOG that the best news for the financial markets would be for job growth to pick up, with an uptick in the UNEMPLOYMENT RATE AS WORKERS RETURN TO THE JOBS POOL AS A SIGN OF IMPROVED CONFIDENCE. This number provided some of that but still not enough returnees to bump the rate higher for the higher rate will make the FED‘s FOMC January 25 statement that much more relevant.
Not everybody agrees with this analysis but that is what makes a market. Some analysts are of the view that the rate won’t increase because the older workers will be leaving the job market. This view is badly flawed as the idea of SENIORS leaving the job market does not mesh with the current act of FINANCIAL REPRESSION. Many people who had planned on retiring as they reached 65 have to make new plans as their savings have been depleted through lower home values and the four-year zero interest rate policy. The financial repression has also wreaked havoc on pension plans and underfunded plans will have to be replenished by ever higher taxes. Mark Zandi and others have maintained that SENIORS WILL BE LEAVING, a view devoid of reality.
In tomorrow’s Financial Times there is another analyst with a similar view. Gavyn Davies cites a Chicago Fed study that also supports the idea the PARTICIPATION RATE is dropping because of the demographic impact of the baby boomers retiring. Why are they not factoring in the damage done to the savings of an aging population? Older workers staying in the job pool longer will continue to wreak havoc on the UNEMPLOYMENT SITUATION as the regular cycle of younger workers replacing retirees will be stalled. And as last week’s consumer credit numbers showed, student loans are on the rise and, thus, underemployed new workers, saddled with huge debts are not in a hurry to create new households. “MOM, WHAT’S FOR DINNER” IS THE MANTRA OF LIVE AT HOME COLLEGE GRADUATES. Again, the FED‘s policy of financial repression comes with a price and that may keep the unemployment far higher than many expect as older workers are forced to work many more years.
***Growth through austerity is the mantra of the post-Greek default. This is the prevailing policy stance of developed economies as bloated budgets are being forced into severe contraction. Spain, Portugal, Italy and Ireland are being placed on severe public budget diets in the hope that less government spending will shrink deficits and lead to lower borrowing costs. The problem is that lower public debt is leading to less economic activity and less revenue, resulting in ADVERSE FEEDBACK LOOPS. The more austerity, the less growth. This could work if the rest of the WORLD ECONOMIES were growing above average, but as we know, growth rates are slowing around the globe.
Japan was able to hobble through the last 20 years because the rest of the globe was growing at an accelerated pace, which lessened the pain for the Japanese corporate and government sector. Global growth enabled the Japanese to maintain huge CURRENT ACCOUNT SURPLUSES which financed its large PUBLIC SECTOR DEFICITS. Factor that with a huge pool of domestic savings and the Japanese were able to avoid a financial crisis. Now with a synchronized global slowdown, the ability to foster growth through austerity is a very difficult outcome to pull off.
Every central bank cited the slowdown in Europe as a reason to keeps monetary policy on a looser bias and the FEDERAL RESERVE will certainly follow suit at Tuesday’s meeting. Chairman Bernanke will be able to maintain the present monetary stance as the GLOBAL ECONOMIC SITUATION REMAINS FRAGILE. Those looking for a change will have to wait for some real improvement in Europe and other troubled areas. In a world of deleveraging, the U.S. cannot be certain of any growth gaining traction. We have yet to hear the sirens from the TIME MACHINE.
Weena,what do the sirens mean?
Weena: It means that it is all clear.
George:What’s all clear?
Weena: It’s all clear and the danger is past.
Hmmm, Chairman Bernanke must spin the rings and hear from Weena before sounding the all clear.