Pace of US jobs growth slows

Posted on September 2, 2016

A job seeker writes down his contact information at the Sears Holdings Corp. booth at a Recruit Military veterans job fair in Cleveland, Ohio, U.S., on Thursday, Sept. 1, 2016. Fewer Americans than forecast filed applications for unemployment benefits last week, a report from the Labor Department showed on Thursday. Photographer: Luke Sharrett/Bloomberg©Bloomberg

Hiring by US employers slowed and wage growth lagged expectations in August, taking some of the shine away from the labour market’s recent performance and easing pressure for a Federal Reserve rate increase later this month.

Employers added 151,000 workers last month, fewer than the 180,000 average forecast from a Bloomberg survey of economists and a slowdown from July’s downwardly revised 271,000 growth. Still, hiring was ahead of the pace needed to keep unemployment steady, with the jobless rate staying at 4.9 per cent for the third month in a row.

    Fed officials are heading into their September 20-21 meeting heavily divided over the case for a near-term rate increase. Robust labour market readings have been a primary motivator for Fed officials calling for action, and August’s numbers by no means point to a marked deterioration, with average monthly job gains remaining at 232,000 over the past three months.

    However, more cautious officials will be able to point to subdued wage and price growth as arguments for the central bank to stay on the sidelines on September 21. Average hourly earnings rose 2.4 per cent on the year, a shade below the 2.5 per cent pace predicted, suggesting there remains little inflationary pressure in the economy.

    “Today’s report probably helps the case of those Fed officials arguing for holding off on another rate hike pending more clarity,” said Jim O’Sullivan, chief US economist at High Frequency Economics in New York. However, he added that payrolls data had in past years tended to be underestimated in initial reports only to be revised upwards later. “There is certainly no sign in the latest claims data of the labour market weakening significantly.”

    The Fed takes into account a broad range of economic data over a number of months when setting rates, rather than obsessing over single reports. But jobs data have played a key role in influencing Fed deliberations this year. Weak employment numbers for May spooked the Fed a few months ago, for example, helping to convince policymakers to keep rates on hold in June. That release looks like a hiccup given the steady gains seen subsequently.

    The September decision has been shaping up as a finely balanced one, with markets anticipating Fridays’ non-farm payrolls data as a possible swing factor. Investors judged the Bureau of Labor Statistics release as being sufficiently soggy to tip the balance in favour of unchanged policy.

    Before the jobs report was released on Friday morning investors were putting odds of just under 30 per cent on a September move, according to CME Group analysis of futures trading. That sank to less than 20 per cent following the jobs report. The policy-sensitive two-year Treasury note slid 3.4 basis points to 0.75 per cent, while the US dollar declined 0.3 per cent against a basket of six major global currencies.

    The disappointing report on Friday takes the “pressure off any immediate need to hike interest rates, significantly reducing the scope for further policy action in September”, said Chris Williamson, chief business economist at IHS Markit.

    Alternative measures of capacity in the labour market continued to point to remaining slack. For example a measure of unemployment that includes people employed part-time because they could not find a full-time post held at 9.7 per cent, unchanged both from the previous month and August in 2015. The participation rate, which measures people in work or actively looking for a job, was unchanged at 62.8 per cent of the population.

    On the other hand, the figures showed that unemployment rates for workers in nine of the 11 large private industries have fallen below their respective pre-recession averages, according to analysis from President Barack Obama’s Council of Economic Advisers. The exceptions are education and health services workers; and mining, quarrying, and oil and gas extraction workers, where jobs have been hit by the oil-price slide.

    Jason Furman, the chairman of the Council of Economic Advisers, said that job growth had been averaging a solid 182,000 jobs a month this year — above the pace of about 80,000 jobs a month needed to maintain a low and stable unemployment.

    Some economists argued that US economic readings were still strong enough to keep a near-term rate increase on the agenda. Analysts at Barclays maintained their prediction of a quarter-point rate rise in September, arguing that payrolls growth of 151,000 was consistent with “solid economic activity” that will lift inflation back to the Fed’s long-elusive 2 per cent target.

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