The Non-Farm Payrolls report in the US came out better than expected, not only in the headline numbers, but also in the details. It seems that the plan that Bernanke laid down back in June remains fully intact. This means the beginning of the end of QE by the end of 2013.
If this NFP is the one that decided the fate of the upcoming US rate decision, the verdict is: Taper. Here are 5 reasons for the “Dectaper”:
- Lower unemployment, more participation: The unemployment rate fell to a round 7%, despite a rise of 0.2% in the participation rate to 63%. This shows a stronger US economy.
- Unemployment rate thresholds: Bernanke mentioned that QE tapering could begin when the unemployment rate drops to 7% and that the rates will remain low until a level of 6.5% is hit. These are thresholds and not triggers, and also the participation has fallen since. Nevertheless, tapering, even a small one, seems closer.
- Improvement in the real economy: The “real unemployment rate”, U-6, fell to low levels of 13.2%. This wasn’t seen for a long time and shows that more people really feel a recovery.
- Not a one timer: The US enjoys consistent gains in jobs in the past year. This isn’t just “one report”. The report for October was very similar: +200K. The four month average stands at 204K.
- What shutdown?: The US economy shrugged off the US government shutdown: we now have data for the month after the shutdown, November, and revised data for October. Both are good. Despite 16 days of shutdown and scary headlines, the US economy totally shrugged it off. So, even with the scare of another shutdown in January and another debt ceiling deadline scare in February or March, it seems the US economy can handle this, and also a lower pace of bond buying from the Fed.
What do you think? Will we see the beginning of the end of QE on December 18th?
Further reading: real reason for a potential “Dectaper”
More: Better than expected US non-farms should be the catalyst for a stronger dollar