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Fed Begins to Release Reports; Dismal Growth in September Job
Monday, October 28, 2013 6:55 AM

The federal government began releasing some of the data reports that had been delayed due to the shutdown. The Labor Department’s employment report for September was of great interest.

Total non-farm payroll employment increased a dismal 148,000 in September, far from the 225,000 monthly average the Fed needs to drive down the true unemployment rate to 6.5 percent by the end of next year. In a separate survey, with the removal of another 136,000 people from the labor force rolls, the nation’s unemployment rate dropped to 7.2 percent, or about 11.3 million people.

The data shows, while total employment increased 148,000 in September, the number of unemployed only declined by 61,000.

The number of long-term unemployed (27 weeks or more) was little changed at 4.1 million, or 37 percent of the unemployed. The underemployment rate (unemployed, part-time workers seeking full-time jobs and those who have stopped their current search) stood at 13.6 percent, over 21 million people or 8.6 percent of the civilian population.

Other key releases this week:

  • Existing Home Sales – declined 1.9 percent in September following no change in August; an annual rate of 5.29 million units. Still, year-over-year sales are up 10.7 percent.
  • Consumer Sentiment – the index fell from 75.2 to 73.2. Appears consumers are even less upbeat about jobs and increasingly cautious about long-term prospects.
     

“The employment report continues to show the fragile nature of the job market and the impact it has on economic growth,” notes Brian Turner, director and chief strategist with Catalyst Corporate FCU.”

According to Turner, job insecurity and volatile household wealth have kept the reins on consumer spending over the past few years.

“With consumer spending accounting for two-thirds of the nation’s GDP, declining purchases of homes, vehicles, appliances and home improvement services not only affect economic growth but also have an impact on the demand for financing, particularly from credit unions,” says Turner.

The Fed projects GDP to average 1.8 percent in 2013, slightly lower than 2012, followed by expansion to 2.6 percent in 2014. The personal spending component is expected to increase from 2.1 percent to 3.0 percent, suggesting an increase in consumer spending next year.

“That would be welcome news to the credit union industry – especially to those with total assets less than $100 million,” continues Turner. “Accounting for 80 percent of the total number of credit unions, this group has, collectively, experienced a 4 percent drop in loans outstanding this year.”

Turner says it also means that credit unions must work vigorously for consumer loans next year due to the expected drop in mortgage originations.

“The latest forecast from the Mortgage Bankers Association estimates total originations will decline about 32 percent in 2014, with purchase applications outnumbering refinancing applications more than three-to-one,” adds Turner.  “This would drop the share of refinancing applications to 36 percent of total originations.”