Slower growth in jobs report; will it give Fed pause?
There’s some good and some not-so-good in the August employment report.
That’s a pattern with which we’re familiar over the course of this economic recovery that began in the summer of 2009.
Among the positives, the unemployment rate remained steady at 4.9%, where it has been since the start of the year.
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The U.S. remains above the fray despite lackluster global underpinnings, as if we needed a further reminder of the inner-connected nature of the world economy.
The “report underscores the strength of the U.S. economy compared to other economies around the world today,” says Tony Bedikian, managing director of global markets, Citizens Bank.
When demand around the world is weak, that makes it tougher for U.S.-based goods producers to do well or even add workers.
Another modest positive: The percentage of those working or looking for work, otherwise known as the labor force participation rate, remained steady at 62.8%. But it remains close to the lowest levels in decades.
Hiring falls short
At the same time, August wasn’t awesome from a jobs creation standpoint.
Hiring fell short of expectations with 151,000 jobs added. The hiring trajectory seen in June (292,000) and July (255,000) wasn’t sustainable and there was no rational story to explain why it would continue at the fairly robust rate seen over those two previous months.
And now we know it did not.
Still, the latest employment gains are seen as sufficient to absorb growth in the workforce, although only 126,000 jobs were added in the private sector.
So, having seen the latest report, what’s the Federal Reserve’s take on the job market?
The latest data doesn’t change the trend or the recent story. In many ways, the Fed has already checked-off the “maximum employment” box.
To be sure, FOMC officials would like to see some of the remaining strains in the work force addressed.
They’d also like to see more substantial wage growth, and the story didn’t improve with the August employment report.
Average hourly earnings are up 2.4% over the past year, edging slightly below the recent trend. The Fed would love to check off its “2% inflation target” box, but we’re not there yet. It might not be seen during months remaining in 2016.
“Taking the longer view, wages are improving. But like seemingly every other aspect of this recovery, that improvement is coming slowly and fitfully,” notes economist Curt Long, with the National Association of Federal Credit Unions.
Taking the pressure off
Federal Reserve Chair Janet Yellen and Vice Chair Stanley Fischer recently seemed to put the world on notice that an interest rate hike could be coming. But when?
FOMC officials will have the opportunity to more strongly telegraph their possible intentions at the upcoming meeting September 20-21 through their summary of economic projections. That document, issued after every other meeting, captures their individual (but anonymous) views on things like interest rates, inflation, employment and growth.
December still seems like the best bet for a rate increase (as was indicated in our just published Bankrate Economic Indicator survey, but we still have plenty of data and an election to put behind us first.
That means even December isn’t a sure thing.
When looking at sectors as reported by the Labor Department, we see further confirmation how the U.S. economy is failing to fire on all cylinders with August job losses in manufacturing, construction and mining.
“The breadth of payroll job growth in August was widespread across services industries but poor in goods-producing industries,” notes PNC Deputy Chief Economist Gus Faucher.
With weakness particularly in manufacturing the most visible causality, the global economy isn’t doing us any favors here, as has been the case for some time.
Reversing that is another item for the economic wish-list.
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