October 7, 2012
The economy is slowly moving toward better days, with the unemployment rate falling to 7.8 percent from 8.1 percent.
Political types on both sides were using the job numbers Friday for an advantage in the presidential race.
But economists tended to interpret the numbers as a slight improvement; consistent with the script that was described by economic historians while the nation was in the throes of the financial crisis in 2008. That script laid out what was expected to be a "new normal" for the economy, where growth would occur, but slowly, and people would go back to work, but slowly. A financial crisis is different than your usual recession. Like a person with a heart attack, the economy heals, but there's a long period of convalescence.
Mohamed El-Erian, who with his co-CEO of the Pimco bond fund, Bill Gross, coined the term "new normal," called Friday's unemployment report a healthy development that showed the "labor market is gaining traction." But in an essay carried by the Financial Times he mentioned that the recent job growth that excited the market early Friday morning, wasn't as substantial as first thought. He noted that a significant part of the improvement came because of people taking part-time work rather than full-time work.
About 14.7 percent of people fall within the government's U-6 unemployment rate, which includes unemployed people and those who have taken a part-time job to get by while looking for something better.
Yet, there were other signs of modest strengthening in the workplace. Employers were putting people to work for slightly longer hours, and the report "suggests at least moderate gains in wage and salary income," Goldman Sachs economist Jan Hatzius noted.
The Dow Jones industrial average closed at 13,610, near a five-year high.
The stock market has been climbing higher for weeks, spurred by stimulus from the Federal Reserve and central banks in other parts of the world rather than strength in the economy.
"We're not too concerned at this stage that we will see a slump in business investment in equipment and software in the fourth quarter and beyond," said Capital Economics economist Paul Ashworth. "But investment growth is still going to be pretty lackluster."
The latest economic data point to business investment contracting slightly in the third quarter, "probably because of a growing caution with the fiscal cliff looming closer and the eurozone crisis rumbling on," he said.
Investors will get a better read on business concerns as companies begin reporting their third-quarter results this week and the government reports international trade figures.
Copyright © 2014 Chicago Tribune Company, LLC