We've turned the corner. When I say “we,” I of course mean the world. And once again the economy that will have the greatest influence on world recovery is that of the United States. The unsubtle sign of US recovery is jobs growth, which we referred to last week and which has exceeded expectations.
In the last six months the private sector has added more 700,000 jobs, pushing the unemployment rate nearly 0.5 lower. The market expectation for the next two quarters is bullish, with an average expected non-farm payrolls positive number of over 200,000 each month, and with the rate itself expected to be below 8.00 percent in the first quarter of next year.
The subtle signs are evident from a reducing level of job layoffs in the public sector, as well as decreasing pressure on state budgets, which The Economist noted this week as signifying that the worst is over. The 3-month T-bill rate is still in single figures, suggesting that risk aversion remains strong, but one shouldn’t expect to see that yield rise materially until the Federal Reserve has given a sign that base rates are rising. The forward OIS (overnight indexed swap) curve shows this isn’t expected until after 2014, but if jobs performance continues at the present rate, I suspect the Fed will announce a change of plan next year. We certainly won’t get any more QE.Page 1 of 4 | Next Page