While perceptions of future Fed policies and the need to begin tapering -- pouring less money monthly into the economy sooner rather than later -- seem to be driving the financial markets, the actions Chairman Ben Bernanke and his associates may take, and their timing, likely depend on the relative strength of the U.S. economy, particularly the job market. Gallup monitoring of the job market suggests little progress over the past year, with the April improvement likely representing a short-term pull forward in hiring activity. The job situation is the "Achilles' heel" of the U.S. economy, and its apparent weakness may explain why the Fed maintains it can increase as well as decrease the amount of money it is pouring into the economy.
Gallup's Payroll to Population (P2P) jobs measure is at 44.1% as of May 23, slightly below April's 44.5% and the 44.4% of May 2012. April's increase appears to have been an indication of early hiring this year compared with 2012, and this hiring activity leveled off at last year's May level. At best, May's P2P suggests job growth is barely keeping up with population growth over the past months.
Part-time jobs show a similar lack of improvement, with 19.8% of the workforce employed in such jobs at the end of the third week in May, compared with 19.9% in April and 19.4% in May 2012. The percentage of employees working part time but wanting full-time work is 10.1%, showing no improvement from the 10.0% of a year ago.
Further, Gallup's Job Creation Index is at 19 as of May 23, the same as the reading for the month of May 2012, while the Wells Fargo/Gallup Small Business job creation measure is down slightly from a year ago.
No Time to Worry About Tapering
Current Fed policy is doing wonders for Wall Street and the housing market -- and many of us think the resulting wealth effects are having a positive impact on the U.S. economy. Of course, how the Fed exits its current stimulative mode without creating an economic mess is not clear.
It is clear, however, that the U.S. job market remains weak in real P2P terms, regardless of the numbers the government reports. In turn, this is not the time to focus on how the Fed may manage a new tapering effort. Instead, the Fed and other policymakers should focus on how they get the financial transition mechanisms working once more -- getting the money the Fed is pouring into the system into the hands of those who can use it effectively to create new businesses and jobs.