Issue of the week: Signs of a true recovery

Could the economy finally be back on track?

Could the economy finally be back on track? asked Ylan Q. Mui and Zachary A. Goldfarb in The Washington Post. With no major tax hikes or spending cuts on the horizon and good prospects for a federal budget deal in Congress, there are real grounds for optimism about the nation’s economic prospects. The latest jobs numbers suggest that private sector hiring is robust, leading some experts to predict “growth as high as 3 percent next year.” Let’s just hope lawmakers don’t mess it up. According to an economist from Moody’s Analytics, “government policies over the past three years have created the largest drag on growth” in 50 years, beginning with the end to government stimulus in 2011 and continuing with “political showdowns that led to budget restraint.” Yet despite that the private sector has now “come to life,” adding 203,000 jobs in November, lowering the unemployment rate to 7 percent.

Those jobs numbers really are good news this time, said Mohamed A. El-Erian in Unlike in previous months, the decline in unemployment wasn’t partly due to discouraged workers dropping out of the job market altogether. “Instead, both the labor participation rate and employment-population rate went up.” Earnings and hours worked rose, too. The question now is whether the “good news for Main Street” will also be good news for Wall Street. All eyes will be on the Federal Reserve, which must decide whether these hopeful signs are durable enough. Will it then take its foot off the gas pedal and “normalize monetary policy in an orderly fashion”?

I think it will, said Jon Hilsenrath in The brighter economic outlook and good payroll numbers will “lay the groundwork for the Fed to begin pulling back on its $85 billion-per-month bond-buying program.” The Fed can taper the program off because “the economy is strong enough to live without it.” But these numbers aren’t exactly an all clear. When you take out October jobs data, which “were distorted by the government shutdown,” the labor participation rate actually inched down between September and November, from 63.2 percent to 63 percent—more evidence of “long-term unemployed workers fleeing the job market.”

Subscribe to The Week

Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.


Sign up for The Week's Free Newsletters

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

Sign up

Luckily, the market seems to have “made peace with the inevitability of the taper in 2014,” said Felix Salmon in If and when the Fed decides to reduce its policy of quantitative easing, the shift “is going to fundamentally change the government bond market.” Judging from its recent movements, “the market will be able to step in to buy Treasurys at these levels even as the Fed steps out.” Still, I doubt the Fed will move until after this “season of good cheer.”

Continue reading for free

We hope you're enjoying The Week's refreshingly open-minded journalism.

Subscribed to The Week? Register your account with the same email as your subscription.