US economic data better even as Fed eases further

The Federal Reserve announced its latest quantitative easing programme last Wednesday in a week that ironically showed that the United States economy is performing better than many had expected.

The Federal Reserve said on Wednesday at the end of its policy meeting that it will be buying an additional $600 billion worth of Treasuries through June while keeping interest rates low for an extended period.

The announcement helped push stock and commodity prices up and the US dollar down. Investors are no doubt counting on increased liquidity to fuel further market rallies. The fact that economic indicators last week were mostly positive also helped.

The business indices released by the Institute for Supply Management indicated that the US economy accelerated in October. Its manufacturing PMI rose to 56.9 in October from 54.4 in September. Its non-manufacturing index rose to 54.3 from 53.2, with the business activity index -- which has a longer history than the headline non-manufacturing index -- jumping to 58.4 from 52.8.

Elsewhere, the euro area, China and the UK also mostly reported better, or at least better-than-expected, manufacturing and services indices for October, helping to push the JPMorgan Global All-Industry Output Index up to a four-month high of 54.8 from 52.6 in September.

However, the economic indicators that the Federal Reserve tends to rely more on for monetary policy appear to justify the latest move on quantitative easing.

For example, the price index for US personal consumption expenditures excluding food and energy was barely changed in September. This indicator, the Federal Reserve's main measure of core inflation, had also risen by less than 0.1 percent in the previous three months. Based on this indicator, the US economy appears close to deflation.

Also, the monthly employment report on Friday showed that the unemployment rate in the US remained unchanged at 9.6 percent in October. Although this is down from the recession peak, the Federal Reserve said in its most recent monetary policy statement that it considers this rate to be too high and coming down too slowly.

Still, the recent data show that the US economy continues to grow, which should, if it persists, eventually bring down the unemployment rate and ease deflationary pressure.