Jobs Report Fuels Retreat from Fed Stimulus
Printer-friendly versionPDF version
a a
 
Type Size: Small
Josh Boak
The Fiscal Times
July 5, 2013

The Friday jobs report confirmed Federal Reserve Chairman Ben Bernanke’s confidence in the recovery.

Payrolls grew by 195,000 jobs in June as the unemployment rate held steady at 7.6 percent, the Bureau of Labor Statistics said in a report. That was 30,000 more hires than the Wall Street consensus.

It’s an example of good news about a recovery that’s finally gaining traction after four fitful years, but it also fuels anxiety that the sun may be setting on the latest round of extraordinary stimulus measures taken by the Fed.

Investors had been spooked by Bernanke’s comments last month that the Fed would tighten the monetary spigot as the economy improved. Stocks tumbled on fears that the Fed would ease up and then end its $85 billion worth of monthly bond purchases by the middle of next year – if the unemployment rate fell to 7 percent.

The Fiscal Times FREE Newsletter

Newsletter
​​

Treasury bonds instantly began to sell off after the release of the latest employment figures. The market interpreted the jobs report as proof that the Fed would soon slow down its level of buying, which has been meant to stir economic activity by holding down interest rates.

“There is now no sign of a momentum loss in the second quarter,” said Michael Feroli, an economist at JPMorgan Chase, in a client note. “After today’s report we are moving to a call for a first reduction in asset purchases at the September [Federal Reserve] meeting.”

Yields on the 10-year Treasury climbed to as much as 2.69 percent in early Friday trading, their highest level since August, 2011.

But stocks interpreted the jobs report positively. The Dow Jones Industrial Average opened up 80 points, or 0.53 percent.

The April and May employment figures were revised upward by 70,000. The leisure and hospitality sector added 75,000 jobs last month, while business services contributed 53,000. Hourly average wages have increased by 2.2 percent over the past year, beating the rate of inflation.

Alan Krueger, the departing chairman of the White House Council of Economic Advisers, noted that job growth has been accelerating. Through the first half of this year, payrolls have increased by a monthly average of 202,000 jobs. The average in 2012 was 183,000.

The June payroll numbers, however, contained some reasons to be cautious. Since May, there are 322,000 more part-time workers, hardly a sign of resilience.

Manufacturers shed 6,000 jobs, a figure that would have climbed above 11,000 if not for gains in the motor vehicles sector. Not counting the U.S. Postal Service, the federal government lost 5,000 jobs last month, as the gravity of the more than $80 billion in budgetary sequestration cuts takes hold.

“While the Federal Reserve has taken important steps in support of economic recovery, Congress has been working against them,” said Heather Boushey, chief economist at the liberal Center on American Progress. “The sequester – the across-the-board cuts of a total of more than $85 billion that began to be implemented in March of this year – continues to work its way through the economy, dragging us down day by day.”