October 2019 National Economic Outlook

Lowest Unemployment Rate in 50 Years; Trade Tensions Ease

Executive Summary

The unemployment rate fell to 3.5 percent in September, from 3.7 percent in the three previous months. This is the lowest unemployment rate since December 1969. The details underlying the drop in the unemployment rate were positive.

  • Employment in the household survey rose a solid 391,000 in September, the fifth consecutive increase, while the labor force increased by 117,000.

  • The broader U-6 unemployment rate (unemployed, underemployed and too discouraged to look for a job) fell to 6.9 percent in September from 7.2 percent in August; this is the lowest U-6 rate since late 2000.

  • Job growth according to a survey of employers (different from the household survey) slowed to 136,000 in September, from 168,000 in August and 166,000 in July. However, job growth was revised higher by a combined 45,000 over the previous two months (from 159,000 in July and 130,000 in August). 

  • Job growth has averaged 157,000 over the past three months, down a bit from 168,000 per month in the year through March 2019 (taking into account preliminary revisions).

After temporary disruptions in the repurchase (repo) market in September led to big jumps in overnight interest rates, in mid-October the Federal Reserve restarted purchases of Treasury bills ($60 billion per month) and lending through the central bank’s repo facility to expand the Fed’s balance sheet and inject liquidity into financial markets.

The Fed’s goal is to maintain a stable supply of excess reserves (cash that commercial banks keep on deposit at the Fed) in the financial system and avoid another incident like the September spike in repo interest rates. Fed officials have emphasized that this is not a substantive change in monetary policy, but instead an effort to ensure more effective implementation of current policy.

President Trump announced on October 11 that the U.S. government would not raise tariffs on $250 billion of Chinese goods imports by five percentage points on October 15 as previously scheduled.

The U.S. and China continue negotiations on a “phase one” deal, addressing tariffs, Chinese purchases of U.S. agricultural products, the opening up of financial services in China to U.S. firms, and intellectual property issues. There is still a round of tariff increases on Chinese exports to the U.S. scheduled for December 15.

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October National Economic Outlook

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