For some time, economists and the financial markets have closely monitored the nation’s job growth and the pace of inflation for developments that could prompt the Federal Reserve to raise interest rates.
Recent days have seen considerable discussion about a previously less watched factor — today’s presidential election. If Democrat Hillary Clinton wins, Bloomberg reported, the Fed is more likely to push rates higher in December if the available economic evidence convinces the Federal Open Market Committee that the time is right.
That’s because she would be expected to generally continue the policies of the Obama administration. A victory by Republican Donald Trump, however, would sharply alter the calculus because Trump has campaigned against globalization and accused the Fed of playing politics in regard to rates.
"If Donald Trump wins the election, the first if, and if in his acceptance speech he reiterates his anti-trade rhetoric — so you have two ifs there — then risk markets will sell off significantly,” Mohamed El-Erian, chief economic adviser at Allianz SE, said Friday in an interview on Bloomberg Television.
"If the two ifs materialize, I would expect a 5 to 10 percent decline in the S&P 500 index of stocks, with the balance of risks toward even a greater decline.”
Atlanta Fed president Dennis Lockhart said Friday that the October jobs report helps to make a strong case for raising rates, but he argued that an election result that jars the financial markets could cause the Fed to wait.
“You can never rule things out post-election,” Lockhart said in a MarketWatch report. “We may end up with enough turmoil around the election to create a different set of conditions,” he continued at a press conference at the annual convention of the National Association of Realtors in Orlando, Fla.
“There are other things that go on in the world that give pause, and you can’t completely rule those out,” he said.
Apart from an election crisis, Lockhart said he favors a rate increase in December.
“We have a very dynamic employment environment,” he said.
The Labor Department said Friday that the economy added 161,000 jobs last month and that the nation’s unemployment rate fell to 4.9 percent. Jobs were added in construction, health care, and professional and business services and the department revised its August and September job-creation figures upward by a total of 44,000.
The average hourly earnings of private-sector workers rose 2.8 percent in October from a year earlier, which was the fastest growth since 2009, when the Great Recession began to hurt the economy.
“The economy set three post-recession records [in October],” Jed Kolko, chief economist at the online jobs website Indeed, told the New York Times, pointing to the wage growth, a drop in the number of discouraged and underemployed workers and a return of prime-age men and women to the labor force.
“These are all signs that the labor market continues to strengthen and is at its strongest point since the crisis,” he said.
The jobs report was not the only one last week that offered evidence of a strengthening economy.
The Commerce Department said consumer spending rose 0.5 percent in September, the largest gain in three months, outpacing income growth of 0.3 percent.
The government also said the personal consumption price index, the Fed’s preferred inflation measure, increased to 1.2 percent for the 12 months that ended Sept. 30. The Los Angeles Times said that was the highest in nearly two years and moved inflation closer to the Fed’s annual target of 2 percent.
“The latest data should be of comfort to the Fed. Spending continues to underpin growth and, combined with positive developments on the labor market and inflation, should enable the Fed to tighten policy in December,” Greg Daco, head of U.S. macroeconomics at Oxford Economics in New York, told Reuters.
Auto sales, though still strong this year, fell in October for the third month in a row, led by declines at General Motors, Fiat Chrysler, Honda, Nissan and Toyota. Reuters said the decline was an estimated 6 percent despite increased consumer discounts on many popular models.
WardsAuto, an auto industry publication, showed sales at 17.9 million on a seasonally adjusted annualized rate, Reuters said.
“If anyone needed confirmation that the U.S. auto market is slowing, they got it with the October sales results," Jack R. Nerad, executive market analyst for Kelley Blue Book, told Autoweek.
Some automakers and analysts continue to forecast a record or near-record sales year after six years of growth, but Nerad said there’s not much hope that 2016 sales will beat 2015, "especially when there is the likelihood of an interest-rate hike prior to the end of the year.”
Consumers may be hesitating to buy that new car or truck because the nasty and divisive election has left them uncertain about their own future under the policies of a new administration.
Today’s election should begin to provide some clarity.