US job growth offers cautionary note for Fed
Jobless rate hits four-year low as workers give up search for employment
U.S. quarters and U.S. dollar bills are arranged for a photograph in New York, U.S., on Tuesday, Aug. 18, 2009. The dollar may fall to a three-week low against the yen after breaking through a support level, according to Tokai Tokyo Securities Co., citing trading patterns. Photographer: Daniel Acker/Bloomberg
US employers hired fewer workers than expected in August and the jobless rate hit a 4-1/2-year low as Americans gave up the search for work, complicating the Federal Reserve’s decision on whether to scale back its massive monetary stimulus this month.
Nonfarm payrolls increased by 169,000 jobs last month, the Labor Department said, falling short of the 180,000 Wall Street had expected and adding to signs that economic growth may have slowed a bit in the third quarter.
In addition, the job count for June and July was revised to show 74,000 fewer positions added than previously reported.
While the unemployment rate fell to 7.3 per cent, its lowest since December 2008, the decline reflected a drop in the share of working-age Americans who either have a job or are looking for one. That participation measure reached its lowest point since August 1978, a further sign of underlying economic weakness.
“Even the Federal Reserve would conclude that the employment trend is moderating and for that reason alone they probably will have second thoughts about tapering bond purchases this month,” said Cary Leahey, senior advisor at Decision Economics in New York.
US stock markets opened higher as investors saw the report as increasing chances the US central bank could maintain its $85 billion a month bond buying pace for a little longer. The dollar fell against the euro and the yen on the data, while prices for U. Treasury debt rallied.
Fed policymakers will scrutinise the jobs data at their meeting on September 17th-18th. They had been widely expected to trim their asset purchases at that meeting.
Fed officials have made clear that they would base their decision on the progress the labour market has made since they launched their third round of ‘quantitative easing’ a year ago. When they started that round, they were looking at a jobless rate that stood at 8.1 per cent.
Still, much of the decline in unemployment has been because people are dropping out of the labour force, partly due to frustration over dim job prospects, and that takes some of the shine off the improving rate.
Some Fed officials have made clear they are ready to scale back their stimulus, but others have been less committal, making it hard to discern where the consensus on the central bank’s monetary policymaking panel lies.
Chicago Federal Reserve bank president Charles Evans, a policy dove, said today he would go into the meeting later this month with an open mind.
The employment report suggested the economy was struggling to regain momentum after stumbling early in the third quarter.
Consumer spending, home building, new home sales, durable goods orders and industrial production all weakened in July.
The economy grew at a 2.5 per cent annual pace in the April-June period. Many economists had expected an acceleration in momentum in the second half of the year.
The employment report is at odds with other data that have shown signs of improvement in labour market conditions. The number of Americans filing new applications for jobless benefits is near five-year lows. A gauge of service sector employment released yesterday hit a six-month high in August.
Some details of the employment report were encouraging, with a bounce in average hourly earnings and the length of the average workweek, which had slipped in July.
Average hourly earnings rose five cents, while the length of the workweek rose back to an average of 34.5 hours from a six-month low of 34.4 hours in July. The drop in July had been blamed on employers’ shifting some positions to part-time in an attempt to curb costs they might face under the Affordable Care Act.
Last month, the private sector accounted for the bulk of the job gains, but government payrolls increased 17,000. Factory employment bounced back after falling in July.
Construction payrolls were flat in August. There was a another month of strong job gains in the retail sector, while leisure and hospitality employment also posted solid increases. (Reuters)