Tags: El-Erian | jobs | Fed | Congress

Pimco’s El-Erian: Jobs Numbers Will Show Who's Winning War Between Fed, Congress

Thursday, 07 Mar 2013 12:04 PM

By Dan Weil

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The next few monthly jobs reports, including Friday’s, will give a clue as to who’s winning the battle over the economy — the Fed, which is trying to speed it up, or Congress, which is acting to slow it down, says Pimco CEO Mohamed El-Erian.

All eyes are on “a rather unusual tug of war that has developed in Washington,” he writes in an article for the Financial Times.

That’s “between a dysfunctional Congress set on creating headwinds to a slowly recovering U.S. economy, and a central bank willing to roll out one untested measure after the other in its attempt to steer the economy toward higher growth and more robust job creation.”

‘Financial War’ Could Wipe Out 50% of Your Wealth’

As for Congress, the sequester it approved will take 0.5 percentage point off of gross domestic product growth this year, El-Erian estimates.

That has left the Fed carrying the economic burden, he says. “This is evident in the Fed’s seemingly endless series of policy innovations.”

El-Erian says the employment reports will offer hope if they show:

• average monthly job growth of more than 225,000;

• a steady diminution in the portion of long-term unemployment;

• strong earnings gains;

• a continuing shift to jobs in tradable goods sectors, which pay better.

“Unfortunately, the job reports will not shed light on the most important counterfactual: namely, how fast would the US be growing if Congress had transitioned from being a headwind to providing a tailwind to the country’s gradually healing economy,” he writes.

A positive sign emerged on the labor front Thursday, when the government reported that first-time jobless claims unexpectedly dropped by 7,000 to 340,000 in the week ended March 2, the lowest in 1 ½ months.

“Every indication we have is that the labor market is beginning to pick up steam,” Drew Matus, deputy U.S. chief economist at UBS Securities, tells Bloomberg.

“It’s all consistent with 2013 being an okay year despite all the fears about what sequestration might mean or Europe might do.”

Declassified: ‘Financial War’ Could Wipe Out 50% of Your Wealth’

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