By: Mark Schieffer, CFA
EVP Chief Investment Officer
The August employment figures returned to a disappointing mark (4 of the last 5 months, with the lone “bright” spot of July revised lower). Non-farm payrolls grew by just 96 thousand, compared to economist estimates of 130 thousand. The unemployment rate remains stubbornly high at 8.1%.
Due to the renewed weakness in employment, the Fed just announced a third round of quantitative easing (QE3). They are committing to buying an additional $40 billion per month in Agency mortgage-backed securities in an attempt to drive long-term mortgage rates even lower. This brings their cumulative commitments to $85 billion per month in balance sheet expansion. They also extended the zero rate short term interest rate policy through mid-2015.
Uncertainty over the future direction of U.S. economic and fiscal policies is weighing heavily on consumer and business decisions to spend and invest. The major election outcomes are just enough in doubt that decision makers are more inclined to wait and see than make longer term commitments. The fiscal cliff is a looming concern; most analysts expect resolution, but the cost of no action will be a significant drag on the economy in 2013—new rounds of layoffs and higher unemployment. Currently, only 58.3% of the population is employed. Putting people back to work would provide an enormous marginal lift to the economy. There is some good news out there: positives in the economy right now are the recovery in housing, auto sales, and a rising stock market. U.S. stock prices are up another 1-3% in the last month, with the tech sector and financials showing improvement.