US jobs market and exceptionally policy support

Harbour Investment Horizons - US jobs market and exceptionally policy support

Investment Research

23 September 2013

Summary

• The US jobs data has always been one of the most important data releases for markets, given the role of full employment in the US Fed’s dual mandate.

• The status of the jobs market has been elevated even further by the US Fed making its exceptional policy support (both forward guidance and QE) conditional on the US unemployment rate.

• However, the unemployment rate is a simple summary measure of the spare capacity in the jobs market, and can be driven by other structural factors, such as changes in labour market participation.

• While the headline unemployment figure is important, the US Fed’s 6.5% threshold for the US unemployment rate is a soft target, rather than a hard trigger for action to hike the Fed Funds rate or taper quantitative easing (QE).

• The US labour market also needs to be considered in the context of the Fed’s broader economic assessment, including the outlook for underlying US inflation which has been falling.

• At the September FOMC meeting, the Fed signalled it needs time to assess whether the recent rise in US mortgage rates will jeopardise the economic recovery.

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