Incipient Normalcy and the New Abnormal

Aspects of the U.S. economy are beginning to act more normally. House prices are up 12 percent over last year. Auto sales hit a 16.1 million unit rate in August. Initial claims for unemployment insurance are back to pre-recession levels. However, this is still an anything-but-normal economy. Monetary policy levers remain in extreme positions. Federal budget battles, once fought in broadsides, are now never-ending guerilla wars. Beyond the current skirmish over a continuing resolution, nothing has been resolved about long-term fiscal imbalances. Business optimism remains impaired.  Many standard measures of economic performance have yet to reset, even as the wave of Moore’s Law (which holds that computational power doubles every two years) breaks over the real economy. Technology will be an ever bigger game changer for labor markets. The real economy (nuts and bolts and laborers in well-defined jobs) may never be the same. The future ain’t what it used to be.

The Federal Reserve is widely expected to begin to unwind extraordinary monetary policy at the upcoming September 17/18 Federal Open Market Committee meeting. Taper-lite looks like a reasonable option, with perhaps a total reduction in asset purchases of around $10 billion weighted toward long-term Treasury bonds. Hopefully, the Fed will also issue some forward guidance illuminating the likely path of the tapering process. However, that hope may remain unfulfilled as the FOMC itself prepares for a reset. In addition to a new chairperson for the FOMC in January, four regional Federal Reserve bank presidents will rotate off as voting members, and four will rotate on. Two governors will definitely be replaced, possibly more. In 2014, we may see an essentially  brand new FOMC that may be amenable to tweaking the courses for asset purchase calibration and for the fed funds rate laid out by Chairman Bernanke.

August payroll employment increased by a less-than-expected 169,000 jobs. July payroll gains were revised down to a weak 104,000 and June was revised down to 172,000. Together, the three months averaged a gain of 148,000 jobs per month, a step below the previous three-month average of 172,000. An outsized decline in the labor force brought the unemployment rate down to 7.3 percent for the month. It also brought the total labor force participation rate down to 63.2 percent, the lowest it has been since August 1978.

US Monthly Economic Update_ 09132013

For a PDF version of this Comerica U.S. Monthly with tables and charts, click here: USEconomicUpdate0913.

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