Jeremy Hobson: The markets are responding this morning to the big June jobs report from the Labor Department which came out a little more than an hour ago. It said that just 80,000 jobs were added in the U.S. last month and the unemployment rate stayed steady at 8.2 percent.
David Kelly is chief global strategist with J.P. Morgan Funds and he joins us live from Boston this morning to discuss. Good morning.
David Kelly: Good morning.
Hobson: Well first of all what’s your reaction to this jobs report?
Kelly: It was predictably depressing. We did get 80,000 jobs, it’s a little bit less than people had thought. There are some silver linings — we saw some increase in temporary workers, we saw some increase in the average work week and the average hourly earnings. But overall you have to say that the economy is growing very, very slowly right now.
Hobson: And why do you think that is? Why are we seeing such slow growth at the moment?
Kelly: Well there are a few things. One of them is that we are bringing our deficit down. A few years ago our federal budget deficit was 10.2 percent of GDP, this year it’s going to be about 7.5 percent. But bringing that down actually exerts a drag on the economy. Less government spending — that’s one of the things that dragging the American economy. Also there is just so much uncertainty. We don’t know what tax rates are going to be next year, we don’t know when we are going to get back to normal interest rates. I think all that uncertainty causes people to wait and see, and of course, wait and see are the three most damaging words to the economy overall.
Hobson: It’s interesting you didn’t mention the words Europe there when you talked about the reasons for this. Don’t you think we can blame Europe a little bit for our problems over here?
Kelly: Not really. I was looking at some numbers and in the first four months of this year our exports overall are up about 6 percent — that’s ok. In fact we only export about 2 percent of our GDP to the eurozone, so it is having some impact on confidence, but I think mostly our problems in the United States are homegrown. We just are lacking confidence, and we are lacking any direction in regard to monetary and fiscal policy.
Hobson: Well, what would you have Washington do then, David?
Kelly: Well, first of all, I think the Federal Reserve needs to lay out a path back towards normal interest rates. This morphine drip of more and more Quantitative Easing, it just isn’t working. If people know that interest rates are going to go up then they’ll get going on borrowing and lending and take advantage of current low rates. And then the Federal Government — we don’t know what tax rates are next year. Both parties need to get together and lay out not just what tax rates are going to be next year, but where they are going to be over the next ten years. We need to know how we get back to some sort of budget discipline here, but do it gradually. We need to reduce uncertainty. I think Washington more than anything else, can’t fix the economy through their own actions, but can help the economy a lot by reducing uncertainty.
Hobson: David Kelly, chief global strategist with J.P. Morgan Funds, thanks very much.
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