Good Economic News

There has been a spate of good economic news over the past week: GDP in the third quarter of 2014 was 3.5%, and jobs growth continues to be steady at over 265,000 per month for the entire year. The GDP number is particularly encouraging, given the 4.6% growth in the second quarter. Keep in mind that we need at least 2% to buffer the economy from outside shocks, and it has been a long while since we sustained anything close to 4% on average.

The jobs number, while encouraging, doesn’t address the participation rate which is now down to 62.7%, the lowest since 1978. That is bad news for a sustained economic recovery as fewer people are participating and wealth continues to be concentrated. For a consumption-based economy to maintain robust growth, all need to experience an increase in wealth to increase spending.

But the flip side to the labor participation figure – from a markets perspective – is that the Fed is likely to continue a very accommodative monetary policy. If there is a real increase in jobs and participation combined, the US economy could be on a good footing for many years ahead.

David B. Matias