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Recent employment report has good news for deposit rates

November 08, 2010

| MoneyRates.com Senior Financial Analyst, CFA

Just days after an election in which Democrats were punished for the slow progress of the economy, a report on employment in October actually delivered some encouraging news.

Could this be a step in the right direction for savings accounts, money market accounts, and other bank deposits that have been suffering from extremely low interest rates?

Employment was up in October

According to the October employment report released by the Bureau of Labor Statistics, total non-farm employment rose by 151,000 jobs in October. Both last month and this year, private sector employment has been growing while government employment has declined (another ironic contradiction to the political landscape, in which the tag "big government" has firmly stuck). Overall, private sector employment has risen by 1.1 million jobs this year.

There were even two positive revisions to prior months' employment reports. Job losses for August were revised downward from 57,000 to 1,000, and job losses for September were revised downward from 95,000 to 41,000.

With the unemployment rate still at 9.6 percent, the job market still has a long way to go, but the most recent figures suggest the economy is at least moving in the right direction.

Implications for savings and money market rates

Obviously, improvement in the employment situation is good news if you are looking for a job, but it also has broader implications. For example, interest rates on savings accounts, money market accounts, and other deposits are victims of the Great Recession that haven't recovered yet. Improvement in employment is a hopeful sign for those deposit rates.

A rise in employment -- especially private sector employment -- is a sign that businesses may be starting to invest in expansion. That's precisely what's needed to increase demand for capital, which would help interest rates rise. At the same time, employment is such a hot-button issue that only clear improvement would lead the Federal Reserve to back off its extraordinary measures to keep interest rates down.

The bottom line: don't expect savings and money market rates to necessarily rise this week, but if employment continues to rise, look for those rates to begin to follow it upward.

Your responses to ‘Recent employment report has good news for deposit rates’

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Richard Barrington

11 November 2010 at 4:49 am

On a macro scale, employment growth is both a sign that business are confident enough to start hiring again, and a source of future wage income to enter the economy. This is why employment has been watched so closely as a key indicator of whether the economy is picking up steam. One report doesn't mean a trend is solidly in place, but stay tuned!

Stock Market For Beginners

10 November 2010 at 10:15 am

Possibly I am not as smart as others, however I am failing to see how this applies to the current economic climate (early recovery). May you please elaborate on how this impacts us on a macro scale?

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