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Forget jobs: Here's why the Fed isn't tapering yet

Jobs numbers alone simply aren't strong enough

December 6, 2013
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This morning's jobs numbers are a reason to celebrate. The number of unemployed is at a five-year low, prompting speculation that the Federal Reserve could even start the long-awaited taper.

Taken as a whole, it could signal a return of the good times. The beginning of the new beginning. The rebirth of the national economy.

It's a simple equation, after all: America back to work + Fed retreating from monetary policy = Return of private capital.

Granted, it's not as complicated as the formula used by the American Enterprise Institute blogger James Pethokoukis to nail jobs numbers, and it shouldn't be; it's wrong to assume everything is getting back on track.

The Federal Reserve Bank of New York released the fourth and final results of its consumer expectations survey and the results predict anything but an improving economy. For most Americans, the economic world is still flat.

Both household income growth and spending expectations are basically flat-lined in the report. Sure, some say they think it will go up and some say down, but the takeaway is that there is no expectation of things getting any better or any worse.

And by measuring expectation of credit availability the Fed analysts reveal that the nation exhibits a certain apathy toward the capital markets.

"While 42% of households reported somewhat or much harder credit access (relative to a year ago) in June, the corresponding proportion was roughly 50% in September and in October," they report. "Similarly, the proportion of households reporting somewhat or much easier credit access declined from 21% in June to 16% in October."

More importantly, the analysts appear to make the argument that these economic indicators, taken together, should do more to impact Fed monetary policy going forward. It is entirely possible that jobs numbers simply aren't a strong enough indicator to make a taper bet as early as December.

"By monitoring expectations for future outcomes, such as income and credit access, the Survey of Consumer Expectation will provide important insight to policymakers to formulate effective policy," they say. "Furthermore, the ability to track expectations and outcomes for specific demographic groups will help them design more precisely targeted policies."

This could be proof that, internally, the Fed is using more robust economic indicators to base their economic decisions than economists-at-large are expecting. So while the economic outlook for consumers remains flat, don't be surprised if Fed reaction is equally unchanged.

Olivier Armantier, Giorgio Topa, Wilbert van der Klaauw, and Basit Zafar are the Fed analysts compiling the economic data for the Survey of Consumer Expectations.