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HEARD ON THE STREET
October 5, 2012, 3:42 p.m. ET
Fed Should Employ a Little Patience
By JUSTIN LAHART
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To judge from Friday's read on the job market, the Federal Reserve could be eying the exit sooner than it expected.
While the 114,000 jobs the economy added in September was about what economists were looking for, revisions to July and August tacked an additional 86,000 onto the nation's job count. The bulk of the upward revisions were related to schoolteacher jobs, which suggests the drag from shrinking state and local government budgets on the job market—and the economy—may be lessening.
The unemployment rate fell to 7.8% from 8.1%, logging its lowest level since January 2009. The underpinnings of the unemployment rate aren't as robust as the jobs figures—it is based on a survey of about 60,000 households while the payroll numbers come from a survey of 141,000 employers.
But because the employer survey is slow to register shifts in the contours of the economy, like when new businesses are getting formed, the household survey is sometimes better at picking up turning points. Job figures from the household survey that the Labor Department has adjusted to cover the same types of jobs the employer survey covers—farm workers are mixed, for example—showed a gain of 294,000 jobs in September.
Some other recent figures are suggestive of a better job market. A bevy of confidence measures, for example, turned up last month. Car sales—the best since March 2008—and chain-store sales both showed consumers more willing to spend.
For the Fed, which is deeply worried that high unemployment will lead to an erosion in skills that could undermine the economy for years to come, the job report was welcome news. It also suggests that its new mortgage-buying program might pack more of a wallop: A job market that is turning higher makes it easier to convince people to buy homes, and to convince banks to lend to them.
At their meeting last month, Fed officials projected that the unemployment rate would average 8% to 8.2% in the fourth quarter, falling to between 7.6% to 7.9% in the fourth quarter of next year. Those numbers are looking overly pessimistic as of Friday.
Minutes from the meeting showed that policy makers are toying with the idea of committing to keep rates very low until the unemployment rate falls through some threshold level. But the minutes also showed that there is disagreement on what the threshold should be, and that officials felt they needed to work further on the idea.
With the data looking up and unprecedented stimulus already in place, the Fed should avoid creating a new straitjacket and watch what unfolds.
.
To judge from Friday's read on the job market, the Federal Reserve could be eying the exit sooner than it expected.
While the 114,000 jobs the economy added in September was about what economists were looking for, revisions to July and August tacked an additional 86,000 onto the nation's job count. The bulk of the upward revisions were related to schoolteacher jobs, which suggests the drag from shrinking state and local government budgets on the job market—and the economy—may be lessening.
The unemployment rate fell to 7.8% from 8.1%, logging its lowest level since January 2009. The underpinnings of the unemployment rate aren't as robust as the jobs figures—it is based on a survey of about 60,000 households while the payroll numbers come from a survey of 141,000 employers.
But because the employer survey is slow to register shifts in the contours of the economy, like when new businesses are getting formed, the household survey is sometimes better at picking up turning points. Job figures from the household survey that the Labor Department has adjusted to cover the same types of jobs the employer survey covers—farm workers are mixed, for example—showed a gain of 294,000 jobs in September.
Some other recent figures are suggestive of a better job market. A bevy of confidence measures, for example, turned up last month. Car sales—the best since March 2008—and chain-store sales both showed consumers more willing to spend.
For the Fed, which is deeply worried that high unemployment will lead to an erosion in skills that could undermine the economy for years to come, the job report was welcome news. It also suggests that its new mortgage-buying program might pack more of a wallop: A job market that is turning higher makes it easier to convince people to buy homes, and to convince banks to lend to them.
At their meeting last month, Fed officials projected that the unemployment rate would average 8% to 8.2% in the fourth quarter, falling to between 7.6% to 7.9% in the fourth quarter of next year. Those numbers are looking overly pessimistic as of Friday.
Minutes from the meeting showed that policy makers are toying with the idea of committing to keep rates very low until the unemployment rate falls through some threshold level. But the minutes also showed that there is disagreement on what the threshold should be, and that officials felt they needed to work further on the idea.
With the data looking up and unprecedented stimulus already in place, the Fed should avoid creating a new straitjacket and watch what unfolds.
.
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