According to Bloomberg News survey of economists, employment has picked up in the U.S. wherein payrolls rose by 180,000 following a 162,000 gain the prior month. Though the data from the Labor Department is awaited, the estimates are generating a bright picture of the U.S. economy in the light of the payroll increase and upward movement in the manufacturing sector. In fact, this Friday’s labor market report will determine whether the Fed is going with stimulus.
Though the U.S. economy is growing at a slower rate, it is still performing better than expected. On the employment front, the report for July was not encouraging; however, August showed an increase in the employment rate and a higher number of people got full time employment than a month earlier. The Fed is paying closer attention to employment among various economic factors that it is going to consider while deciding on stimulus.
Stronger-Than-Expected Manufacturing Sector
The U.S. manufacturing sector saw a lot of growth the last month wherein it grew at the fastest pace in more than two years. The Institute for Supply Management’s (ISM) index of national factory activity shows that there has been a rise of 55.7 in August which was 55.4 in July. Though it is not a significant growth, comparatively it is a positive indication, particularly when it was least expected.
However, critics say that as manufacturing accounts for merely 1/8th of the US GDP, it may not have the wanted influence on the overall economy. To them an increase in consumer spending can be of great importance as it accounts for more than 70% of the economy.
Decision to Be Taken on Stimulus This Month
The Fed Chairman Ben S. Bernanke has a plan to start reducing the $85 billion a month in asset purchases, provided the economy improves. His plan has received support from policy makers and they are confident that in the light of current economic condition and labor market, it is right time to taper stimulus, particularly, when job gains and rising home values are boosting Americans’ finances.
Market observers admit that gain in jobs will boost spending as investors would buy homes and automobiles. Better data on employment and manufacturing will mean that the Fed will pullback stimulus as soon as its scheduled next meeting on September 17-18. Even investors are waiting for the report to be released this Friday to determine where to invest.
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