Financial Daily from THE HINDU group of publications
Wednesday, Mar 10, 2004
Financial Daily from THE HINDU group of publications Wednesday, Mar 10, 2004 |
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Money & Banking
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Govt Bonds Columns - Financial Scan US bond yields tumble as jobs data disappoint S. Balakrishnan
THE woes of the US economy (and President Mr Bush) on the jobs front do not seem to be going away. The Administration's forecast of net 2.6 million jobs creation in 2004 is practically up in smoke. For, it means an average addition of about 3 lakh a month to non-farm payroll in the remaining months this year. Compare this with the figures of a few tens of thousands for January and February and the magnitude of the gap between wishes and reality becomes obvious. The US Federal Reserve's charter, unlike that of the ECB, also includes growth and employment. So its Chairman, Mr Alan Greenspan, cannot proclaim that the poor jobs data is none of his concern, unlike ECB Presidents, whose remit is confined to price stability, leaving them free to blame their Governments for unsound fiscal and labour policies for the high rate of unemployment in Europe. What can Mr Greenspan do? He is trying his best keeping interest rates at all-time lows and handing out what amounts to virtual guarantees that they will stay low - hence the use of phrases such as "considerable period" and "patient" in describing the Fed's policy stance. He has also tried to go further in singling out US' educational system for failing to produce high skill and knowledge workers who are most in demand. The low skill jobs move offshore and the high paying ones are occupied by Asian migrants. Just the other day, Senator Mr Corzine, a Democrat, offered an interesting and plausible explanation for jobless growth. Bush's tax cuts are entirely oriented towards the wealthy whose propensity to consume job-creating goods and services is limited. The fiscal deficit is fine if there is employment-enhancing public expenditure, but the latter is clearly not the case. (To votaries of free enterprise, this would smack of socialism)! Reflecting the dismal employment situation, the Fed's "hold" button and no price pressures, bond yields tumbled after the jobs report. 10 years, which traded at a little above 4 per cent, crashed 20 basis points to 3.8 per cent levels, while 2-year yields fell to 1.5 per cent. There were similar movements in European bonds, where too 10 years dropped below 4 per cent. US stocks are reinforcing the depressed mood with the Dow failing to make any headway. It is meandering around 10,500, while the Nasdaq struggles to hold 2,000. These, despite projections of rising corporate profits for first quarter of 2004. The US GDP growth for the first quarter is almost certainly going to be less than fourth quarter of 2003. Most data is coming in below forecasts and the trade deficit, which is GDP-subtracting, is widening. The tonic for a revival in spirits may not be within the US, where both monetary and fiscal measures seem to have reached their limits. How about an early capture of Osama Bin Laden and an end to the fear of terrorism around the world to revive flagging financial market morale?
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