Employment is a lagging indicator of the economic cycle and usually picks up once recovery is underway and businesses need more staff to meet increased demands for the goods or services. The recovery following on from the Global Financial Crisis has been marked by its weakness and the fitful nature of demand around the world.
In the USA and the UK, fiscal stimulus packages have been used to try to bolster the recovery by the provision of cheap money, injected into the economy through asset purchases (bonds), but these measures must end at some stage. The forward guidance given by the Federal Reserve and the Bank of England has consistently suggested that the trigger for the phasing in of the withdrawal of these measures will be when unemployment eases beyond a certain level; 6.5% in the USA and 7% in the UK. However, analysts have consistently suggested that these figures are not set in stone and that “tapering” may start before these targets are met. US Q3 performance was revised upwards from 2.8% to 3.6%, further fuelling this speculation.
Data released by the US Department of Labor should fuel the tapering debate since they reveal that unemployment has fallen to its lowest level in five years and currently stands at 7%. Some 203000 jobs were created in November which beat analysts’ expectations. However, a note of caution was sounded because the figures may be flattered by the re-employment of public employees who were laid-off when US lawmakers allowed the partial shutdown of the government over the budget stand-off in mid-October.
The Federal Reserve is pumping $85 billion a month into its asset purchase programme. Some of this money has found its way to investments in the stock markets of emerging countries and it is anticipated that these markets will fall as soon as the tapering process gets underway.