WITH the US continuing to produce lackluster macro data and the presidential elections now less than four months away, eyes are on America’s two most powerful politicians – President Barack Obama and Federal Reserve Chairman Ben Bernanke – for signs of any moves to give the economy a boost.
POOR QUALITY LABOUR
Obama will today sign an extension of the Bush-era tax cuts, but jobs will continue to take centre stage until the 4 November election.
The US non-farm payroll print on Friday was the latest US number to disappoint, with only 80,000 new jobs added to the private sector in June. As the chart (below) from the American Enterprise Institute (AEI) demonstrates, over the course of the current administration, the US has consistently managed to undershoot expectations, failing to produce long-term job growth. The chart shows unemployment predictions published to support the $800bn Troubled Asset Relief Program (Tarp) alongside real-life employment outcomes.
According to the St Louis Fed, total non-farm payrolls have decreased by 1.3m from December 2008 to the latest print. And it’s not just quantity, but quality of employment that is in decline. Full-time jobs have decreased by 2.5m over this period, with some of this slack being taken up by an increase of 1.6m part-time jobs – meaning that the US is not just facing a problem of unemployment, but also of underemployment.
US manufacturing data also shows signs of slowing. The ISM manufacturing index declined to 49.7 in June, falling below 50 for the first time since July 2009. Much of the blame for these figures has been levelled at deteriorating external demand – US manufacturers export around a fifth of their output. But while there is not much that can be done in the short term to ramp up external demand, the means and the temptation exists for the government to attempt to stimulate domestic spending before election day.
In its last statement, the Federal Reserve put the prospect of a further round of quantitative easing on the backburner, disappointing traders hoping to ride the short-term wave of another injection of cheap money into the US economy. But as America fails to produce solid growth, eyes will be on the next Fed meeting at the end of the month and on the minutes from the previous meeting when they are released on Thursday.
Cumulative data from the last 100 years shows that in an election year, the performance of the Dow Jones index tends to see a peak around the November election – thanks in no small part to governments trying to give markets a short-term lift to bump up the popularity of the incumbent president. As the race hots up for Obama to convince the American public that he deserves a second chance, be ready to capitalise on any short-termist policies designed to help his cause.