It has been six years since the U.S. economy left recession and in that time the world’s economy has continued to see its position improve.
However, with interest rates still at record lows and no sign of a move in sight, is the world’s largest economy really out of the emergency room?
The U.S. economy is headed essentially towards full employment, as that principle is commonly understood. The last few years have seen non-farm payroll figures enjoy extended stretches above the 200K mark, and while this data has become weaker of late, that is as much the natural consequence of an economy that is much closer to full employment.
However, the overall participation rate of the US economy - in other words the percentage of Americans actually in work - continues to decline.
Since 2009, the actual proportion of U.S. workers in employment has declined steadily, as more and more leave the workforce and do not return. Despite years of quantitative easing and ultra-low interest rates, plus an undeniable recovery in consumer spending, confidence and economic growth, this indicator is still the one that will cause Janet Yellen to stay up at night.
It is not, however, just the jobs picture that still worries economists.
Even an apparently mundane measure as the monthly number of U.S. railroad car loads is indicating that not all is well. The monthly figures are below even those of 2010 and 2011, and well down on the pre-recession levels.
These measures offer us a snapshot of the U.S. economy that moves beyond headline measures such as growth figures and job numbers. While the U.S. economy is a lot stronger than it was a few years ago, and is not really at risk of moving back into recession, it still has problems to solve.
This perhaps underlines why the Federal Reserve is still so reluctant to raise rates.
Despite the siren calls to ‘do something’, Yellen has so far resisted the temptation to raise rates and spark a crisis in emerging markets that may come to hurt the U.S. economy in time. The slowdown in China makes life even more difficult, although from the most recent Federal Reserve meeting it appears that the committee is less concerned than it was.
A number of rate cuts in China will begin to have a cumulative effect on growth there, while the European Central Bank’s move towards more quantitative easing provides the Federal Reserve with more room to manoeuvre.
Given what we have seen over the past two months it is difficult to predict what will happen if the Federal Reserve leaves rates unchanged in December.
If no move is forthcoming then the statement will be the most important element. From September’s meeting, it seems that the market is very sensitive to any sign that the Federal Reserve is downgrading its growth assessment, with much of the year-end performance likely to hang on Yellen’s words next month.