Solid US jobs growth doesn’t assure rate hike from the Fed
THE US September employment numbers released last week confirmed that US labour markets remain healthy, with wages rising and new entrants joining the job hunt.
But coming in short of expectations, analysts said the data was not enough to firmly convince the Federal Reserve to finally raise interest rates in December.
Closely watched Labour Department figures showed the US economy added 156,000 jobs in September, slower than the average of 210,000 in the two previous months.
As job seekers returned from the sidelines, the unemployment rate nudged upwards one tenth of a point to 5 percent, with 7.9 million people counted as unemployed.
The White House touted the results as a boon for the working person’s bottom line, noting that so far in 2016, hourly wages in the private sector had risen at an annualised rate of 2.8pc.
“In fact, real wages have grown faster over the current business cycle than in any since the early 1970s,” Jason Furman, chair of the White House counsel of economic advisers, said in a statement.
Over the month, the average workweek grew by 0.1 hours to 34.4 hours. Average hourly earnings rose six cents to US$25.79.
But for Fed policymakers, the question of whether the US is at or near full employment – a point at which economists believe inflation should rise and interest rates should be pushed up – will likely persist.
A rise in wages could suggest employers are having trouble finding qualified recruits and thus that jobs markets are tightening.
But members of the Federal Open Market Committee who oppose immediate interest rate raises argue that labour markets still remain “slack”, noting that successive months of jobs gains have failed to produce decisive decreases in the unemployment rate or unambiguous signs of inflationary pressure.
The rise in the jobless rate, despite more jobs created, suggested slack remains.
Tim Duy, senior director of the Oregon Economic Forum, said the so-called Fed “hawks”, or those who favour raising rates now, had an increasingly difficult case to make.
“I would say one more report like this and the hawks will have another fight on their hands in December,” he posted on Twitter.
Supporting the argument of a tighter market, the labour force participation rose 0.1 percentage points to 62.9pc last month, compared to 62.4pc a year ago.
US interest rates have remained at historic lows, even after the Fed raised short-term rates in December for the first time in nearly a decade to their target range of 0.25 to 0.5pc.
After announcing a course of rate hikes for 2016, policymakers at the Fed have instead let them stand pat, citing uncertainty abroad and signs of weakness in the US.
Fed chair Janet Yellen predicted last month a rate hike by year-end if hiring continued to improve and no other major risks developed.
The Fed is due to meet next just days before the November 8 US elections, leaving observers to claim any rate increase can only come at the final meeting of the year in December.
Michael Gapen and Rob Martin of Barclays said the trend indicated a move by the Fed eventually.
“It is not clear to us that the labour market momentum is fully consistent with a December rate hike,” they wrote in a research note.
“Nonetheless, most [Fed] members will likely take comfort from the underlying details of the report along with the relative strength in wage growth,” they said. –