Theoretically, historically, we are already on impossible ground. In October, another 214,000 jobs, upward revisions in prior months, unemployment down to 5.8%, even involuntary part time is down to 11.5% from 15%, but hourly wages grew only $0.03, or 2% year over year. How low could unemployment go before igniting wage paying competition among employers? Five percent? Four percent? Three percent? What if the Fed acts pre-emptively, but unnecessarily? The Fed is so concerned that it asked its 22 primary dealers, and 5 said that if the Fed hiked its overnight rate next year it would be back to 0 within 2 years.
The steady 200,000 per month job gains have suspect elements. The October manufacturing survey was red hot, yet manufacturing payrolls gained only 15,000 jobs. Half of the October overall gain was in bottom wage, poor stability retail and hospitality work. Factory orders tailed 0.6%, home prices are off 0.1% in September, and year over year gain slipped to 5.6%.
Then again, what impact will desperate attempts at recovery by the rest of the world have on the US, and are the ex US central banks already past the point of no return?
We should be glad we live where we do.
Europe has cut its growth forecast for the next year to 0.8%, and its PMI right now is a break even 50.6, with annual inflation of 0.4%. Italy is contracting, yet its national debt is growing another 5%.
Japan has better numbers after the adoption by the Bank of Japan, the most extreme central bank action anywhere in history, anything necessary. The Bank of Japan already has bought securities equal to 60% of Japan's falling GDP. Japan's tax revenue covers only half its spending. Its annual deficit is $365 billion. The Bank of Japan is buying Japanese bonds at double the rate of the deficit. Japanese government bonds total more than double Japan's GDP.
Here the benefits: cheap oil, cheap imports, no inflation. The risks: exports drop, and falling wages overseas via imports pull down wages here. Other nations export their deflation and unemployment. An over strong dollar is a net drag here.
Here all looks well out the window, To figure out what comes next, we have to look around the curve of the earth, where the action is. Time will tell.