Direction of the Economy

In general, the direction of the U.S. economy has been up in recent months. Still, there have been a few negative indicators — the apparent lack of retail sales in December and the more recent mediocre growth in jobs reported today. Part of the lack of retail sales in December be reflected in increased on line or Internet sales growth as wel as in real reductions in overall holiday sales because people simply are spending less money even though consumer confidence seems reasonably high.

The general inability of the economy to sustain increases in job growth even in the face of the substantial growth in U.S. markets in 2013 is a little more puzzeling. The fact that the relatively anemic job growth was accompanied by a reduction in the percentage of the job- force that is out of work (going from 7.0 to 6.7 percent) represents no cause for celebration. This may simply mean that increasingly many of those out of work have stopped looking. The interpretation of this observation may be rather more complicated than we think.

In three years the FED has pumped over three trillion into the economy and has in the process provided a strong inflationary counter-stimulus to the deflationary stimulus caused by numerous cuts in federal spending over the same time period. The FED’s so-called quantitative easing has helped keep the cost of federal borrowing down, by being, in some months almost the sole purchaser of federal bonds. This has also substantially stimulated the value of stocks, which ought to have increased profits substantially and so improved the position of many businesses to the point where they should now be adding jobs at increased rates. While some jobs have been added continued anemic job growth seems uninterpretable in the face of the size of the FED stimulus. The value of the increased market price in equities may be making its way into improved business productivity, as well as into profits. Some jobs are being added, but not nearly as many as could or should be expected.

Thee economy is improving and increased economic growth is expected in the new year, but growth and real increases in jobs cannot be as high as it needs to be. Improvements in computer capacity, artificial intelligence and robotics have collectively reduced job growth rates more rapidly that we previously expected. I’ve written about this previously and will again.

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