Friday, 2 November 2012

Mike Lenhoff: Congress must address the fiscal cliff

Wall Street felt the benefit of positive jobs data this week
Aside from the better than expected Non-farm payrolls for October, what makes today’s US employment report especially welcome for President Obama and, of course, those who have just got jobs, is that the numbers for the preceding months were revised significantly upwards. Taking August and September together, some 84,000 more jobs were added to payrolls that reported initially. On top of October’s headline figure of 171,000, we are talking about an economy that produced 255,000 more jobs. While the unemployment rate edged up as expected, this was due partly to an increase in the workforce. If the prospects for jobs are looking up, more entrants into the workforce would be expected.

Along with yesterday’s Institute of Supply Management October survey for manufacturing, today’s US news suggests that the final quarter of the year is getting off to a good start. This against the backdrop of a better US housing market too. If only Congress could address the fiscal cliff. Certainly the pressure is on from the Fed, which has made it crystal clear it can only do so much to support the economy. There is pressure also from the corporate sector, which has made it clear too that the uncertainty to which the fiscal cliff has given rise is a dominant factor affecting the prospects for economy and hence investment and the creation of still more jobs.

Reducing uncertainty by sorting out the fiscal cliff is bound to be a sure way of enhancing the effectiveness of the Fed’s easy monetary policy. Stimulating aggregate demand in this way is also likely to be a sure way of helping to improve what has been a disappointing results season for the corporate sector. With about 75 percent of the S&P 500 having reported, the story is less about earnings, which have not performed all that badly relative expectations, and more about the top line which has greatly disappointed in view of the loss of economic momentum in the US – and elsewhere.

Mr Bernanke and co. are doing what they can. Now it’s all down to Congress. Less uncertainty means more economic growth, better corporate results, more jobs, more confidence and a better equity market.

Mike Lenhoff
Chief Strategist

No comments:

Post a Comment