The headlines of the Non-Farm Payrolls report were positive: a better than expected gain in jobs, and a drop of the unemployment rate to the lowest since December 2008.
However, the details of the report provide the Federal Reserve enough ammunition for further easing next week.
Ben Bernanke already clearly said that the unemployment rate is not the only figure that the Fed is looking at, but rather the “wider picture” of unemployment: the participation rate, employment-to-population rate, etc.
So, the participation rate actually dropped from 63.8% to 63.6%, and the employment to population rate also slid from 58.8% to 58.7%. So, while the headline figure is impressive, the wider picture is unconvincing.
Another figure that the Fed didn’t mention, but is painful is the “real unemployment rate”, U-6, which actually dropped from 14.6% to 14.4%, but it is still extremely high.
Also the headline NFP figure is not that good: economists had expected a gain of around 90K jobs, and the actual outcome was 146K. However, the report also included downwards revisions worth 49K – so the surprise wasn’t that big.
Conclusion: More Easing
The upcoming Fed decision could extend QE3 (or QE-infinity) from MBS to treasuries, given the current situation.
The impact of more bond buying on unemployment at this point is questionable. However, Bernanke and his colleagues prefer to do all they can.