US economic recovery slows

Disappointing economic data from America has lifted stocks to new highs.

America's monthly employment figures, one of the key data releases delayed by the US government shutdown, were released this week. Payrolls expanded by 148,000 in September, compared to expectations of 180,000.

The unemployment rate crept down from 7.3% to 7.2%. Existing house sales, meanwhile, fell to their slowest annual pace in four months.

What the commentators said

The biggest worry is the labour force participation rate the proportion of people of working age either employed or looking for work. It's at a 35-year low of 63.2%. "The fear must be that too many Americans are simply giving up looking for work."

Along with the sclerotic labour market, this year's fiscal squeeze from the sequester, which trimmed annual spending by around 5%, has also sapped momentum. Higher mortgage rates, meanwhile, have tempered the housing recovery. And now the question is how much damage might have been done by the latest shutdown.

Most estimates have pencilled in a 0.4% reduction in annualised growth this quarter. But in any event, we won't know until early next year, says ING's Rob Carnell, when data that won't have been skewed by the slide this month and the bounce-back in November becomes available.

The upshot, says Carnell, is that the Federal Reserve seems unlikely to taper its quantitative easing (QE) or money-printing programme, until next spring at the earliest. The central bank had already stayed its hand in September because it was worried that the economy was not prepared for even a mild deceleration in the pace of monetary easing.

The prospect of QE being extended into next year explains why stocks jumped after the poor payrolls, said Michael Mackenzie in the FT. The S&P 500 is now up 23% so far this year.

It looks set to register its best annual performance since the late 1990s bubble, a reminder that QE has not been able to engender a sustainable economic recovery, but has provided cheer and free money for asset markets. "Eventually, stock prices and fundamentals will converge. For now, equity bulls have time on their side as the Fed keeps the liquidity punchbowl filled to the brim."

Recommended

US stimulus checks – will you get one?
US Economy

US stimulus checks – will you get one?

To help fight high inflation and financial hardships, some US states have started to send stimulus checks to support residents. Here’s what you need t…
14 Nov 2022
US inflation drops to 7.7%
US Economy

US inflation drops to 7.7%

Costs for rents increased, but the price of cars, clothes and medical care helped slow the rate of inflation in the US
11 Nov 2022
Federal Reserve hikes interest rates to 4%
US Economy

Federal Reserve hikes interest rates to 4%

The Federal Reserve continues its battle with inflation with another bumper interest rate hike.
3 Nov 2022
US inflation remains higher than expected
US Economy

US inflation remains higher than expected

US inflation fell by 0.1% but remains higher than expected due to the rising cost of food, shelter and medical care.
14 Oct 2022

Most Popular

Wood-burning stove vs central heating ‒ which is cheapest?
Personal finance

Wood-burning stove vs central heating ‒ which is cheapest?

Demand for wood-burning stoves has surged as households try to reduce their heating costs this winter. But how does a wood burner compare with central…
29 Nov 2022
Fan heater vs oil heater – which is cheaper?
Personal finance

Fan heater vs oil heater – which is cheaper?

Sales of portable heaters have soared, as households look to cut their energy costs. But which is better: a fan heater or an oil heater? We put them t…
21 Nov 2022
Best regular savings accounts – November 2022
Savings

Best regular savings accounts – November 2022

You can earn an attractive rate on the best regular savings accounts. We tell you the best on the market to take advantage of right now
29 Nov 2022