October 2012 Economic Outlook

This is a monthly newsletter by Greg Sweeney, CFA, Chief Investment Officer, at Bell State Bank & Trust. Sweeney holds a bachelor’s degree in business from the University of North Dakota, is a CFA charter holder, and is a 26-year veteran of the Investment Management team.


Federal Reserve Monetary Policy

  • At the next Federal Reserve meeting on October 24, we expect the Fed to leave rates unchanged between zero and 0.25%. The Fed updated its target, indicating rates would remain near these lows until 2015.


  • The year-over-year consumer price index (CPI) released in September shows inflation at 1.7%. We expect this number to drift higher in the final quarter of this year. Still, it will be well below the actual increase in costs experienced by most consumers.

Economic Activity

  • The Federal Reserve announced QE III last month; this continues the money printing and bond buying of the preceding programs, with the goal of keeping interest rates low. As in the past, we question the impact of continuing to do this. Someone recently asked, “When will QE IV be announced?” In short, never. Why? QE III is unlimited!
  • It is still about jobs. Current political banter focuses on unemployment dropping to 7.8% and 5 million jobs being created over the last four years, but we prefer to look at the data. The information below comes from the Bureau of Labor Statistics and reports total U.S. non-farm workers. Putting numbers behind the line below, there were 136.33 million people working as of September 30, 2008. Today there are 133.5 million people working. We don’t see 5 million jobs created, we see nearly 3 million jobs lost.
  • Another fact that seems to escape the daily news is the continued decline in the percentage of the population that has work. Population statistics are reported annually by the U.S. Census Bureau. At the end of 2007, the population was 301,621,157 and the number of employed people from the chart above was 137,983,000; 45.7% of the population had jobs. At the end of 2011, the population was 311,591,919 and the number of employed people was 132,186,000; 42.4% of the population had jobs. Bottom line: our population is 3.3% larger, and the number of people working is 4.4% lower. This is not the way to build a strong economy or a solid tax base.
  • Employment, not unemployment, tells the story.

Fixed Income

  • With government bond-buying programs all over the globe aimed at keeping interest rates low, it is hard to know where the market reality is.

Stock Market

  • Last month, we wondered if the prospect of more Fed stimulus would push the stock market higher. It looks like the answer is yes. Now we wonder how long it will last.

View previous Economic Outlook newsletters.

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