From Westpac’s rising star Elliot Clarke comes a terrific chart pack on the US economy. Here’s the highlights:
• The US labour market continued to add jobs at pace in September, with 248k positions created in the month and back revisions of +69k.
• The unemployment rate fell to just 5.9% as the participation rate continued to trend lower; 62.7% is a new 36-year low for participation.
• Despite the strong payrolls outcomes of 2014, substantial slack remains in the labour market; continued robust gains are necessary for it to dissipate over the coming 12 to 18 months.
• Labour market slack is an amorphous concept, but it is most clearly seen in: the prevalence of part-time and temporary work; the skew in job creation towards low-paid positions; and historically-low participation amongst prime-aged and young workers.
• Inflation remains benign at present, and this is expected to remain the case hence; discretionary price pressures are limited.
• Despite the strength apparent in job creation, the housing market remains in a fragile state.
• Mortgage approvals continue to trend down, with net mortgage credit creation at banks and the GSE’s limited. Key to this weakness is previously incurred debt (mortgage; student; and auto loans) and the underutilisation of workers.
• Financial markets continue to benefit from the liquidity provided by the Federal Reserve: equities have held onto gains and volatility remains low.
• But the direct benefit received by households has been limited; by and large, this sector has chosen to not increase their market exposure.
• For the FOMC, further healing is necessary before rate normalisation can begin. The lower bound is not a comfortable place, but the consequences of an over-zealous tightening cycle would be much greater.
Still looks like a late Q1, early Q2 rate hike. And the full chart pack is here.
