December Jobs Report

So I took a long pause from posting here but now I’ll do more I guess. Anyway, the December Jobs Report: a terrible 74,000 jobs added. It could be an anomaly, the previous two months were above 200,000, and revised upwards in the December report. In other bad news the unemployment rate dropped from 7 to 6.7% due to people dropping out of the labor market. However, the unemployment rate has dropped significantly from when the Fed started its monetary stimulus program and is now slowing down the rate at which it buys bonds with money it creates. Maybe I’ll go into detail about that later.

At the start of 2013 I had a post called “This Year Should be Better”. Was it? The stock market had well above average returns, which if you want to assume that’s completely rational, it means there’s an expectation of increasing profits due to higher expected future growth. Annual GDP growth figures aren’t out yet (that I could find), but the year in job growth is less generous to 2013. The average monthly job growth for 2012 was 183,000; in 2013 it was 182,000.

So by that metric I was wrong, but like any clever (wannabe)economist, I laid out conditions that limited my prediction. I said that it would be a worse year if the fiscal cliff was allowed to happen. And a large part of it did in fact happen: taxes went up on January 1st, and budget cuts went into effect in March. The full force of the fiscal cliff was expected, by the CBO, to cause negative growth for the first half of 2013. Instead we had growth similar to the previous year. Part of this is due to the total fiscal contraction being smaller than what the CBO forecasted using “current policy” as a guide.

But we’ve also had expansionary monetary policy as described above. That we had a sizable fiscal contraction and essentially no slowdown in growth points to an offsetting factor that I would argue is monetary stimulus. The flipside of this is that, if we somehow had a significant fiscal stimulus, people would expect (rightly I think) that the positive effects would be offset, to some degree, by less monetary stimulus at whichever pace Fed goals are reached.