Amid the euphoria caused by the Fed’s latest bout of spending and the good employment data for October, there were also several reminders of the realities of the slack American economy.
The Fed’s move pushed markets higher Thursday and Friday in the US and elsewhere.
So shares and commodities finished the week strongly, while US Treasury bond yields hit a series of new lows, especially on the five year bonds.
But the yield on 10 year bonds rose for the first time in three days on Friday, despite the Fed easing.
The US dollar was weak (despite the near 1% rise on Friday after the jobs figures) and the Australian dollar finished the week above parity at $US1.10159
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Officials from China, Germany and South Africa on Friday criticised the Fed’s return to so-called quantitative easing, claiming the move would create instability and worsen imbalances by triggering surges of capital into other currencies.
Newsagencies carried quotes such as “With all due respect, US policy is clueless” from Wolfgang Schäuble, Germany’s finance minister who also told reporters, “It’s not that the Americans haven’t pumped enough liquidity into the market. Now to say let’s pump more into the market is not going to solve their problems.”
China was also very critical of the Fed move.
But the move was warmly received by investors.
The surge in optimism pushed US shares to new recovery highs and Australian shares decisively above the range they have been stuck in for a month with both markets up 3% over the last week.
Asian shares which are likely to be key beneficiaries of the global liquidity boost flowing from QE2 were up even more with Hong Kong shares up 7.7% and Chinese shares up 5.1%.
But in the US, there was also a reminder of the problem with four banks in Maryland, Washington and California closed by regulators on Friday, bringing the total number of US bank failures for the year so far to 141, beating last year’s 140 with almost two months to go and the highest number of collapses in 17 years.
The total of assets involved is very much lower because 2009 included some large banks, as did 2008.
And pending US home sales fell 1.8% last month in a result that surprised confident analysts as the mortgage foreclosure fracas and overhang of unsold properties took their toll on homebuyers.
And, buried in the employment reports, some more gloomy news, as well as the solid headline stuff.
First up, US nonfarm payrolls rose 151,000 in October and August and September’s totals were revised up by a total of 110,000. October’s rise was more than double market estimates for a 60,000 rise.
The US work week edged back up to 34.3 hours from 34.2 hours in September and along with the moderate increase in wages, average weekly earnings, a proxy for work-based personal income, jumped 0.5% month-on-month, offsetting the 0.2% drop in September.
But to put the 151,000 figure in some perspective, a couple of other points need to be considered.
For example, The New York Times reported that according to the Brookings Institution’s Hamilton Project, it would take 12 years to cut unemployment to 5% (what it was before the GFC) even if the economy adds 208,000 jobs a month, every month. That 208,000 figure is the single best month for new jobs in the US in the past year.
And Reuters reported that at the October rate of 151,000 jobs, the 5% rate wouldn’t be regained for another 20 years.
And the US Congress (even before the new Republicans take their seats from January 1) have to extend the unemployment benefits of more than two million people now without jobs.
If that doesn’t happen, unemployment will rise from December, but many of those losing benefits won’t be recorded, so they will leave the active pool of people looking for jobs, putting further pressure on the participation rate (now at a neat three decade low).
Although the 151,000 jobs was good news, the US population is still growing faster than the number of jobs.
The unemployment rate remained steady at 9.6% in October only because the labor pool shrank by more than a quarter of a million people.
The participation rate – the percentage of adults who are working or looking for work – fell to 64.5%, the lowest in 26 years.
The number of people who are too discouraged about their job prospects to even look rose to the highest on record, and could go higher next month, remember.
Virtually all the job gains were in three parts of the service sector – health/education, retail trade and waste/administrative services.
Goods-producing employment barely rose. Many sectors still reported job declines last month, including manufacturing, commercial and residential construction, transportation, information, financial and government. And the number of full time jobs again fell, as they have for the past five months to take the fall in that period to 1.1 million.
The National Association of Realtors (NAR) said its Pending Home Sales Index, based on contracts signed in September, fell 1.8% to 80.9 from an upwardly revised 82.4 in August.
Economists polled by Reuters had expected a 3% rise.
"Existing home sales have shown some improvement but the foreclosure moratorium is likely to cause some disruption and contribute to an uneven sales performance in the months ahead," NAR chief economist Lawrence Yun said in a st
