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Jobs Growth Falls Flat on Wall Street: Will it Impact the Fed & Election?


This morning the Labor Department announced that the U.S. economy added 200,000 jobs last month, helping lower the unemployment rate to 8.5%.

While one-off data points are routinely dismissed by Wall Street cynics as signs of corruption and/or ineptitude on the part of those who gather the data, today's figures were only the latest in a growing list of signs that the economy is showing genuine, if muted, improvement. To discuss the trend and its implications Breakout welcomed Michelle Girard, senior U.S. economist at RBS.

Given America's lack of a living fiscal policy, the nascent growth seems to be the function of an organic business cycle or the result of the Federal Reserve's aggressive stimulus. The more convincing the economic growth becomes, the less stimulus would be needed.

"If the economy is in fact beginning to improve on its own, the Fed may not need to be quite so activist," says Girard.

The Abolish the Fed crowd shouldn't start celebrating just yet though. Noting that the last few years have seen several false recoveries, Girard says she and other economists are expecting a continuation of "accommodative policies," if not activism, through at least 2014. The Fed's stance towards rates, if not more exotic tools, will become more predictable later this month when they release quarterly rate outlooks.

While presumably bullish for stocks, it's notable that markets didn't scream euphorically higher when the jobs data were released. In part that's a function of positive data losing its shock value. Another party killer comes from Washington, DC.

"Uncertainty about the election could keep things restrained," Girard says.

Restrained or not it's now undeniable that the economy is moving forward, albeit at a glacial pace. If the recovery manages to pick up pace this time, the "risk on" trade may just be getting started.