Fed Holds Off on Stimulus for Now

Will the Fed try to stimulate the economy more or not? Is QE3 in the immediate future? The answer to those questions at the end of the latest meeting of the Federal Open Market Committee on Wednesday was "not yet."

Will the Fed try to stimulate the economy more or not? Is QE3 in the immediate future? The answer to those questions at the end of the latest meeting of the Federal Open Market Committee on Wednesday was “not yet.”

Perhaps the Fed doesn’t want to be accused of undue haste, but the central bank did seem to set the stage for a stimulus as soon as the next meeting of the FOMC, which is in September, or at least before the nation is slated to deal with the “fiscal cliff” in January. For one thing, the FOMC’s assessment of the economy is now couched in more negative terms: “economic activity decelerated somewhat over the first half of the year,” the committee said in its press statement.

The last straw might be Friday’s employment report. A bad one might prompt action in the form of further bond buying, which is about all the Fed can do. Fed observers believe that should the central bank decide on a QE3 course, it would commit to buy about $500 billion in mortgage-backed securities. That would add significantly, but not astronomically, to the roughly $2 trillion the Fed already holds in MBS and Treasuries.

Wall Street dropped immediately after the FOMC make its announcement on Wednesday afternoon, but ultimately seemed to shrug off the news, ending down by relatively small amounts. The Dow Jones Industrial Average lost 32.55 points, or 0.25 percent, while the S&P 500 was down 0.3 percent and the Nasdaq was off 0.66 percent.

ADP jobs estimate surprises on the high side

Automated Data Processing, which always releases an employment report covering the U.S. private sector ahead of official Bureau of Labor Statistics numbers, said on Wednesday that employers added a net of 163,000 positions in July. It was a surprise on the upside, but it’s rare when the ADP figures come close to the official ones, and in fact they often overstate hiring velocity.

ADP reported that businesses of all sizes were hiring with some dispatch. Small businesses (fewer than 50 employees) hired 73,000 workers, while large businesses (over 500 employees) hired 23,000. Mid-sized businesses—those in between 50 and 500—hired 67,000. The service sector hired 148,000 workers, according to ADP reckoning, while goods-producers hired 15,000 (of those, 6,000 were in manufacturing).

Separately, the Associated General Contractors of America reported on Wednesday about employment in the construction trades nationwide. According to the organization, construction employment declined in 162 out of 337 U.S. metro areas between June 2011 and June 2012, increased in 127 and stayed stagnant in 48. For the most part, this reflects the fact that construction employment has declined or remained unchanged as the public sector continues to cut back on investments in new construction and infrastructure.

The largest job losses were in the Chicago MSA (down 5,600 jobs, or 5 percent), followed by New York City (down 5,500 jobs, also 5 percent). Other places that lost a fair number of construction jobs year-over-year included greater New Orleans, Tampa-St. Pete, Nassau-Suffolk, NY, and Anchorage. Since June 2011, Bakersfield-Delano, Calif. added the highest percentage of new construction jobs (23 percent, or 3,300 jobs) followed by Fargo, N.D.-Minn. (17 percent, or 1,200 jobs).