Stimulus not necessary

American economy overcomes Washington shenanigans

The American economy overcame Washington's shenanigans in October. Employers added 204,000 new jobs in spite of the government shutdown. Together with robust third-quarter gross domestic product (GDP) figures released on Thursday, it looks like congressional dysfunction is becoming increasingly irrelevant to growth, and justifies beginning to rein in both fiscal and monetary stimuli.

The Bureau of Labor Statistics jobs data showed broad and unexpected strength, with 60,000 upward revisions for August and September's figures, together with October's unexpectedly high number. The bureau's household survey was weak, showing 735,000 fewer persons employed, amounting to a drop of 0.4 percentage point in the labour force and an uptick of 0.1 percentage point in the unemployment rate. But unlike the establishment survey on which the job-gains figure was based, this figure counted furloughed government workers, artificially inflating unemployment data.

The details were also encouraging. The government let go of a net 8,000 workers, making private sector employment gains even more robust than the overall figure, while job creation was well distributed among leisure and hospitality, retail, services, manufacturing and healthcare.

One month doesn't necessarily reveal a trend, particularly this month, which may contain hidden distortions, for example by the survey work being carried out after the shutdown, later than the normal cycle. Yet when combined with Thursday's announcement of 2.8 per cent GDP growth, it suggests the economy is in solid shape, steaming ahead despite the costs, distractions and uncertainties created by Washington's political battles.

As a result, long-term considerations can now be given the importance they deserve. The federal deficit, at $680 billion in the year to September 30, is still relatively and dangerously high. And the US Federal Reserve's purchases of $85 billion a month of Treasury and agency paper may be imposing as-yet unrevealed costs on the economy.

It's only one month, but the implications for current congressional budget negotiations and the Fed's December meeting are becoming increasingly apparent.