The weak gain in private sector payrolls does support the view presented in the latest FOMC Minutes released yesterday, which among other things, indicated how businesses are reacting to the degree of uncertainty arising over the outlook for the economy and for fiscal policies – and notably the ‘fiscal cliff’. As indicated in the FOMC Minutes, companies have been ‘particularly cautious’ in view of the latter and have been and are likely to remain ‘reluctant to hire or expand capacity.’ The figures for the private sector payrolls over the past months certainly reflect the concerns.
From the point of view of aggregate demand, jobs – be they in the public or private sector – still generate income and spending. So the good news is that the market has discovered that, as of the September figures, there are now 200,000 more jobs than before. That is, including the revisions to July and August (and ignoring all prior revisions).
The difficulty is that public sector jobs can be easily lost again. Of course, so can those in the private sector if recession lies ahead, which is likely with the ‘fiscal cliff’. So while these numbers vindicate the decision taken by the Fed to provide more stimulus for the economy, they also reinforce the Fed’s message to Congress, which is that its policy tools are unlikely to offset or mitigate a fiscal shock. After the election, Congress will likely defer the fiscal adjustment programme into next year and so avoid the fiscal cliff. It will thus gain time to get down to serious business and while this might be a bit like kicking the can down the road, it’s still better than recession. It will, however, have to be dealt with.