quantitative easing 4? All the concerns about a possible recession and the world’s central banks turning to negative interest rates have led the U.S. Federal Reserve to reconsider its strategy, but does this mean quantitative easing will make a comeback soon? There are plenty of reasons to think another round of QE in the U.S. is far off, with the most recent reason coming from last week’s employment report. But does this mean bad news for the S&P 500?
Quantitative easing 4 – U.S. jobs report includes mixed data
Last week’s jobs report indicated that employment in the U.S. is strengthening. The participation rate improved, but wage inflation did not. Also the unemployment rate didn’t worsen. Average hourly earnings disappointed with a -0.1% month over month decline, decelerating to a 2.2% gain year over year.
Evercore ISI economist Ed Hyman and team believe wages continue to accelerate despite the data suggesting otherwise. Specifically, they’re expecting a 3% gain by the end of the year, noting that Costco raised its minimum wage $1.50 to $13 per hour.
Further, the workweek fell 0.6% month over month, bringing the February income proxy down 0.5%. The U.S. economy added 272,000 jobs, including revisions, and household employment climbed 530,000, indicating a clear increase in the participation rate. In the last 72 months, the U.S. has added an average of 192,000 jobs per month for a total of 13.7 million, Evercore notes.
Real turn or dead cat bounce?
So the question now is whether the U.S. economy is truly turning around or whether what we are seeing is essentially a head fake or dead cat bounce. The Evercore ISI team thinks it looks real and is good—except of course for those looking for an increase in pay.
We’re also seeing recoveries in other areas, like iron ore and coper prices, the Baltic Freight Rate Index and WTI.
Further, Evercore ISI’s company surveys stabilized in the last three months after trending lower for more than a year. The 13-week average now sits at 39.1, which the firm’s economists say indicates about a 2% growth rate in real gross domestic product.
Markets have faltered since end of quantitative easing 3
The firm also said that the stock market has been performing poorly since the end of the third round of quantitative easing, noting that it’s truly scary to think that the S&P 500 might not rally unless the Fed starts a fourth round of quantitative easing.
Graphs in this article are courtesy Evercore ISI.