Will recent job growth lift money market rates?
October 14, 2011
When the Bureau of Labor Statistics released employment figures for August, the net change in jobs for the month was exactly zero. At the time, it seemed that the number zero perfectly summed up the economic outlook: no new jobs, no signs of growth, and no hope for improvement.
A month later, with the release of September's employment summary, the outlook became a bit sunnier, as employment had improved by 103,000 jobs. Will this be enough to give money market rates a much-needed boost?
Money market accounts search for an economic pulse
Money market rates began 2011 at a national average of 0.23 percent, according to figures compiled by the FDIC. At the time, that seemed extraordinarily low, but money market rates have since dropped even lower. By early August, they had lost another three basis points to reach 0.20 percent. Since then, the pace of declined has actually quickened, as money market rates dropped yet another three basis points in just two months to 0.17 percent.
Like other deposit accounts, money market accounts remain one of the victims of the weak economy. That environment has meant tepid loan demand and few attractive investment opportunities. That gives banks little room to offer much in the way of interest rates. The situation has been exacerbated by Federal Reserve measures to drive interest rates even lower in an attempt to stimulate loan demand.
A better-than-nothing jobs report
Different economic cycles turn on different variables. In other cycles, interest rates or consumer confidence might be the key to a recovery. However, with consumer debt burdens at record levels going into the 2008/2009 recession, the chances that consumers would simply borrow and spend the nation out of recession were slim. Job growth--and the wage growth that would likely accompany strong job growth--are the keys to injecting new fuel into this economy. "Better-than-nothing" may sound like faint praise, but it is about the best you can say for the most recent jobs report.
Having 103,000 net new jobs created in September is certainly better than zero. Plus, that original figure of zero job growth in August has since been revised to an increase of 57,000. So things are looking up, if only to a limited degree.
Here are the sour notes sounded by the recent jobs report:
- First, 103,000 net new jobs is still an anemic growth figure. It wasn't enough to budge the national unemployment rate, which remains at 9.1 percent.
- Second, the August and September figures were distorted by 45,000 telecommunications workers who went on strike in August, and then returned to work in September. Add this 45,000 to August's job growth and subtract it from September's, and it practically reverses the two numbers. This means that when you back out the temporary impact of that strike, job growth essentially slowed from 102,000 to 58,000 between August and September.
Once the numbers have been sifted, the most recent jobs report may have been better than nothing--but it wasn't much better. With money market rates themselves barely better than nothing, more improvement in the economy is urgently needed.
