Jan Hatzius, chief economist at Goldman Sachs, weighs in on today’s August jobs report. In general, things are going at a decent pace, he says. The economy is beginning to pick up.
geopolitics as well. let’s start with the jobs report and take a closer look with jan. good morning. good morning. the jobs report shy not just what the market thought but what you guys thought as well. what happens from here? i mean, i think in terms of the economy, i would say you want to look at the jobs report, but you also want to look at some of the other information that’s been released this week which generally has been pretty good, ism, claims numbers have been pretty good. in general it seems to us that things are going at a decent pace. we think the economy is starting to pick up a bit. still fairly slow but we still feel quite comfortable with the idea that 2013 will be significantly stronger than 2013. on the policy side, of course, that’s the immediate question, what does all this mean for the fed at the next meeting in a week and a half. our expectation is still that they taper — and by how much? 20 billion or a little less. i think one way of making it a dovish taper would be to reduce the amount. one way would be to combine the tapering with a reinforcement of the forward guidance. you know, the unemployment rate, of course, came down. that was the one optically very strong part of this report, but that’s a little at odds with the rest of the report. so i think it strengthens the notion that you might want to either lower the unemployment threshold or — but you said — — introduce additional conditions that need to be met before you start hiking, even when the unemployment rate is down to 6.5%. you’ve been telegraphing that for a while. i expect some changes. whether it’s going to be an outright reduction in the unemployment thresholds, that i’m not sure about. i think the alternative is to, for example, put more weight on inflation being back at the target. right now it’s 1.2%. or more weight on employment to population ratios, labor force participations. they’re already talking about all those things but you could go further in that direction. at this point a lot of people are saying it’s 6.5% and that’s what matters and it’s fed officials themselves that have been focused on this number and if we hit it in 12 to 18 months’ time then — it was earlier this week that people were talking about rate hikes. sure. is all of that off the table? oh, i don’t think so. i mean, i think the market is still pricing in if you look at the feds funds futures contracts, hikes sometime around year end 2014, maybe early 2015, and i think a lot of that has to do with the fact that the headline unemployment rate has continued to come down. i think it’s in the interest of fed officials to send a pretty strong message that it’s not formulaic. chicago fed president evans said that it’s conceivable that the unemployment rate is going to be below 6% before they hike. it’s going to depend on a lot of factors. why have these isms been such a head fake. people were extrapolating a 300,000 number, a 250,000 number for today. i would never extrapolate an unemployment — an employment number just based on one indicator, and i think, you know, plotting, say, the employment component of the nonmanufactur ism against payroll numbers and saying this could be a 300,000 number, you know, i do think you want to take other things into account. i would still view them as genuine pieces of information, but ones that you want to down weight because there’s a lot of other information that’s available. are you worried that the stock market is decoupling from the u.s. economy and that fed policy has managed to lift stocks here, not necessarily address this longer term structural problem and at this point that that divergence will continue to grow wider? i mean, i think stocks are not just a function of the strength of growth. i mean, if that were the case,