(ThyBlackMan.com) Wednesday and Friday are two days of reckoning when it comes to the Federal Reserve Bank’s (Fed) policy of withdrawing easy or cheap money from the economy. The Fed started withdrawing money through its Quantitative Easing (QE) program in December 2013. Of course, there will be many other days in the future when data of this nature becomes as important. Nevertheless, Wednesday and Friday of this week gives investors the earliest indication of whether the economy is moving in a direction commensurate with the Fed’s expectations. Friday is more important than Wednesday. Wednesday on CNBC at 8:30 in the morning Eastern Time, ADP/Moody Analytics will give its best estimate of private sector job creation, ahead of the federal government’s official announcement on Friday at the same time and on the same station.
ADP, Automatic Data Processing Corporation is a payroll services company which has entered into the business of reporting monthly job creation numbers on the Wednesday ahead of the Bureau of Labor Statistics’ (BLS) official announcement the following Friday. ADP, in partnership with Moody’s Analytics and its Chief Economist Mark Zandi, is releasing the report. Even though Zandi and ADP may have access to some of the same data used by the federal government, their reports do not always match up; however, investors use the ADP report as an indicator of what is going to be in the BLS report. Some investors take market positions based on the ADP report. Though, investing ahead of the
BLS report may not be the smartest move.
The reason the March numbers are so important is that the December, January and February job creation numbers did not meet anyone’s expectations. They were disappointing. At the end of the day, it matters not if the unemployment rate falls if the economy is not creating enough jobs to match the growth of people entering the country’s employment sector. Anyone who follows the data on the number of jobs created by this economy knows job creation is not sufficient. A healthy economy creates monthly, 250,000 to 300,000 jobs. Respectively, the numbers for the above-mentioned months according to the BLS were, 74,000, 113,000 and 175,000 jobs created. Zandi and Federal Reserve Chairwoman, Janet Yellen, along with the whole Federal Open Market Committee (FOMC) have blamed “bad weather” for the poor numbers.
Thus, they are saying March numbers will be more robust and reflective of where the economy really is when it comes to job creation. They are even saying the number should be north of 250,000 because of the pent-up need of businesses who want to hire. Some economists are even calling March and April “the take off” months for this economy as the job numbers in these months could continue at that rate into the near future. There is no question that we need the jobs. As a working group, the fallout from the 2008 downturn continues to hammer black people. The Great Recession as this downturn is called, ended in June of 2009 and here we are in April of 2014 with blacks experiencing their sixth year of double-digit unemployment. They also have the highest unemployment rate of any working group.
Additionally, we found out from the Fed, the unemployment rate numbers released by the BLS are not an accurate reflection of the number of the country’s unemployed. As a result, the Fed has said it will no longer use the unemployment rate as a key indicator of the health of the economy. They had before this announcement used the unemployment rate as an indicator of when they would start allowing interest rate to rise.
They used the rate of unemployment because, they thought, at the time it was a good indicator of when workers might start pressuring employers for higher wages. If you have a rate of unemployment, that is approaching the full rate of employment or what economists feel might be close to the full rate of employment, workers feel confident they can ask their employers for wage increases without the risk of being fired. The Fed chose 6.5% as their bench mark unemployment rate, as to when these higher wage requests might commence. When the national unemployment rate got to 6.6% in January before increasing to 6.7% in February, there were more than ten million people still unemployed and the economy as indicated above created only 113,000 jobs.
Having observed this, the unemployment rate the Fed reasoned, was not a good indicator of the health of the economy. Many well informed experts say, the national unemployment rate is off by as much as 4-5% because the BLS does not take under consideration the long term unemployed who may have stop looking for work, the under employed and part time workers looking for full time employment. This change by the Fed in using the unemployment rate as a major indicator in determining interest rate policy is good news for blacks. The black unemployment rate in February 2014 was 12.0%. If you add 4% to that rate, that conservatively places black unemployment in the stratosphere at 16%!
The Fed now will use the inflation rate as its indicator. The hypothesis is that full employment and the inflation rate are directly related. As I indicated, when workers feel comfortable in asking for wage increases and they actually get those increases, businesses seek to offset those increases through raising prices if they can. Rising prices create inflation. The Fed then is forced to raise interest rates to retard the price increases.
Rising interest rates retard job creation. Of course with the national unemployment rate projected to be above 10%, there is little chance that we are going to see upward pressure on wages. Therefore, the Fed is able to keep short term interest rates low without the fear of seeing inflation becoming a problem in the short run.
However, a low interest policy, whether short or long term, is not a job creation plan. Low interest rates facilitate growth, especially among businesses that are sensitive to low interest rates, such as the auto, home, appliance, and furniture industries. Nevertheless, our economic recovery, as we are witnessing, is going to be a slow trudge if the federal government through consumer demand is unable to involve the rest of American industry ( http://www.Jobcreationnow.com ). And so it goes…
Staff Writer; James Davis
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