The Federal Reserve’s two key market indicators showed improvement in the economy based on February reports.
The Commerce Department’s PCE Price Index increased 0.2% in the month of December. This followed a 0.1% increase in November. The Core PCE Price Index, which excludes food and energy, showed increases of 0.1% in December and November, indicating price inflation is not currently a threat to the overall economy. Further, preliminary year-over-year changes in the PCE Price Index and Core PCE Price Index in December were 1.1% and 1.2%, respectively. At these rates PCE price inflation is below the Federal Reserve’s target of 2%.
The Commerce Department’s January Employment Situation Report stated an increase of 113,000 nonfarm payroll jobs on a seasonally adjusted basis bringing the overall unemployment rate to 6.6%. At 6.6% the unemployment rate is approaching the Federal Reserve’s 6.5% target employment rate. It is also the lowest unemployment rate for the U.S. economy since October 2008.
The ADP’s January National Employment Report, which tracks data on private labor market employment, stated a total seasonally adjusted increase in private sector jobs of 175,000. Service-providing industries led the monthly increase adding 160,000 jobs with Professional/Business Services adding 49,000 jobs in January.
In December 2013 the Federal Reserve’s Open Market Committee began its first QE3 asset purchase tapering as a result of improvements in the U.S. economy’s overall market conditions. At its December 2013 meeting the FOMC reported it would decrease asset purchases in its QE3 program by $5 billion per month for both agency mortgage-backed securities and longer-term Treasury securities. Further tapering continued in January 2014 when the FOMC announced it would reduce asset purchases by another $5 billion for agency mortgage-backed securities and longer-term Treasury securities. Following the QE3 asset purchase reductions the current monthly rate for asset purchases of agency mortgage-backed securities and longer-term Treasury securities is $30 billion and $35 billion, respectively. Future tapering is likely to continue in 2014; however, the FOMC’s tapering decisions may be more directly focused on the inflation rate which continues to consistently remain below its 2% long-term objective.