Investors are celebrating the strong reading on U.S. payroll gains in January, but economists aren’t quite ready to join in the chorus. As you can see in the opinions below, the big questions are whether the pace of job gains can be maintained throughout the year – and what the Federal Reserve’s response is going to be, in terms of low interest rates and other policy stimulus measures, such as quantitative easing.
Paul Ashworth, Capital Economics: “With housing still in the dumps, fiscal policy being tightened and the euro-zone crisis likely to flare up again at any moment we still think the U.S. will endure another year of weak growth in output and employment. That said, if the labour market strength continues for another month or two then the Fed would find it hard to justify any additional QE in the spring.”
Paul Ferley, Royal Bank of Canada: “The employment report provided encouraging signs that labour markets and economic activity have strengthened going into 2012. However, despite the improvement the unemployment rate remains historically high and above the Fed’s view of a so-called equilibrium rate of 5.2 per cent to 6.0 per cent. Thus policy is expected to remain highly accommodative to encourage a further closing of this labour market gap.”
Ian Shepherdson, High Frequency Economics: “Downside is that if these numbers continue, unemployment will fall much further/faster than the Fed expects, so the chance of rates staying at zero through the end of 2014 is much smaller than they think.”
Andrew Grantham, CIBC World Markets: “The U.S. economy has begun 2012 with something of a hiring spree, and two consecutive 200+ payrolls readings are the clearest indication yet that labour market conditions have improved. If such hiring were to continue, and assuming even modest productivity gains, GDP growth in Q1 should better our current forecast of a 2 per cent pace.”
Steven Wieting, Citigroup Global Markets Inc.: “While employment gains should be well supported by the severe retrenchment behind us – current employment levels were first reached in late 2000 – we don’t believe pace of expansion ahead will support gains this robust through the entirety of 2012. In addition, warm clear weather likely boosted seasonal activity measures recently."
