The December 6th job report came out even better than the markets had anticipated. This article by El-Erian describes that the net monthly job creation came in at 203,000 which is approximately 20,000 better than was anticipated. Also worth noting is that the new jobs did not emerge from any particular sector but instead came from almost every industry. This means that unemployment is back down to where it was in November of 2008. In addition to there being more jobs, the article reports that average earnings and hours worked grew as well.
With those facts now stated, let's explore what the job market means for the economy in general. There are a couple of key areas directly impacted by the labor market. First is Main Street. By Main Street we're essentially referring to everything other than Wall Street. This primarily would include individual investors but also includes the overall economy. With higher employment rates and higher wages overall, individual investors are more able and willing to start investing their money in the markets again. This naturally improves the overall status of the economy.
Not only does the higher employment rate help Main Street but it also has a major impact on Wall Street. Wall Street consists basically of major corporations, executives, and financial institutions. With the improved employment rate, companies become not only more able, but also more willing to invest in capital and other growth opportunities. If we see similar improvements in future months, and if we really see corporations starting to invest more in growth and capital, this could potentially open the door for the Fed to gradually normalize monetary policy. Normalizing the policy has the potential to prevent market disruptions like those we saw last May-June and thus help further stabilize the financial and overall status of the economy.
1 comment:
nickwb:
How does this relate to ManEc?
A lot of this is cheap talk. Cheap talk is OK on a blog, but you sound like a reporter (with little business experience) rather than an MBA student.
Let me give you some examples.
"... the new jobs did not emerge from any particular sector but instead came from almost every industry. This means that unemployment is back down to where it was in November of 2008."
How does the second sentence follow from the clause included from the first?
"With higher employment rates and higher wages overall ..."
Employment is higher. Employment rates ... not so much. And what is a "wage overall"? Is that an average? A median? Did everyone's wage go up? Is it just wage-earners? What about people on salaries?
"... individual investors are more able and willing to start investing their money in the markets again."
Did they stop? When? If so, who's been driving the booming stock market of the last year?
"This naturally improves the overall status of the economy."
"Naturally" in this context is a red flag. Why does that naturally improve anything?
" With the improved employment rate, companies become not only more able, but also more willing to invest in capital and other growth opportunities."
Hmmm. Employment reflects past decision. Investment is about future prospects. There's a chicken or the egg problem here. Perhaps the increase in employment was from past investments.
"... potentially open the door for the Fed to gradually normalize monetary policy. Normalizing the policy has the potential to prevent market disruptions like those we saw last May-June ..."
I don't really want to touch this one, because I know enough to know I don't the answer. But, there's an assumption here that the Fed was the cause of those disruptions. I wonder what the people inside the Fed would have to say about that.
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