Good News Friday
Silver Lining in the December Jobs Report
January 8, 2010
The U.S. Bureau of Labor Statistics this morning reported a loss of 85,000 payroll jobs in December, a disappointment compared with the consensus for zero jobs gained or lost. The unemployment rate was unchanged at 10.0 percent. After the announcement, short-term Treasury prices rose a bit (interest rates fell), suggesting a longer period before the Federal Reserve begins to raise interest rates. Oil prices fell, consistent with the scenario for a sluggish recovery. This shouldn’t be viewed as too much of a surprise. November’s gain of 4,000 jobs (revised upward from the previously announced loss of 11,000 jobs) was an abrupt change from the trend, and the labor market gave a little of that back in December. The average monthly job loss receded every quarter last year, from -691,000 in the first quarter to -69,000 in the fourth quarter.
A slower pace of recovery could be better for the long-term health and balance of the economy by keeping a lid on inflation. The Federal Reserve has flooded the financial system with liquidity at the same time that the government has spent heavily to stabilize the economy. The excess liquidity and deficit spending is like dry kindling that could lead to an outbreak of inflation if money begins to circulate faster through the economy, i.e. households and businesses raise their spending quickly. A gradual pace of recovery will reduce the chances for an outbreak of inflation down the road.
Have a great weekend.
Robert Bach
SVP, Chief Economist
Grubb & Ellis