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As Taper Talk Returns, Degree is as Important as Timing

Last week was full of economic data that pointed to an improving U.S. economy. The Institute for Supply Management’s (ISM) manufacturing index was better than expected for November, and that month’s auto and truck sales continued to climb on a month-to-month basis. We also finally received data on construction spending and new homes sales, both of which delivered better October figures versus. those for September. Even the big figure for last week, November jobs employment, was modestly ahead of expectations. Job creation was slightly better than expected, and the report reflected a bigger drop in the unemployment rate — to 7% from October’s 7.3%.

During the last several months, we’ve witnessed an almost steady decline in the unemployment rate, but largely for the wrong reasons — a drop in the labor force. While we had more than 200,000 jobs added in November, the number of people leaving the labor force in the November alone easily eclipsed the number of jobs created. In my book, this means the unemployment rate is falling for all the wrong reasons, and that view is backed by a near-historical low in the labor force participation rate, as well as Gallup’s own disappointing payroll-to-population figure.

But with a lack of economic data and corporate earnings this week, the stock market herd once again will fixate on when the Federal Reserve will taper its stimulative efforts. We all know the Fed is pumping $85 billion in to the economy each month. I refer to that monetary stimulus as training wheels. Much like a toddler on a bike, it is those wheels that have been guiding our economy to ensure that it does not fall.

Learn more about how you can profit by keeping an eye on the Federal Reserve at Eagle Daily Investor.

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