A September Fed rate hike remains on the table later this month after August’s jobs report didn’t settle things.
US payrolls rose a less than expected 173,000 (over 200,000 was the forecast), but July’s jobs figure was boosted from 215,000 to 245,000, June’s was boosted by 14,000 and August’s unemployment rate fell to 5.1%.
The news sent Wall Street down more than 1%, the US dollar higher and the Aussie dollar ended on a new six year low of 69.08 US cents on Saturday morning and will go lower today and tomorrow (US markets are closed for the Labor Day holiday tonight).
US jobs growth has slowed from 2014’s monthly average of 260,000, it’s running at 211,000 so far this year as the unemployment rate heads towards 5% – a big hint that the labour market is getting tight.
And yet wages haven’t risen noticeably – the fall in oil and gas prices is keeping a lid on wages in many areas, and inflation refuses to go higher
Wages growth edged up but remains low at 2.2% year on year, but its considerably faster than inflation, which is running at 0.1% (for the Fed’s favourite measure, or 1.2% for core inflation in the year to July).
The lower jobless rate – in fact the lowest since 2008 and the August jobs number and the revision for July – which added together produced more than 200,000 new jobs in Friday night’s report, would be enough to support a Fed rate hike this month.
But it’s not quite strong enough to offset fears about possible downside threats to US growth and inflation coming from global uncertainties, including the risks to Chinese growth, weak commodity prices and now the possibility of more easing (spending) from the European Central Bank, which would put more upwards pressure on the value of the $US.
That in turn would add to the already strong disinflationary forces in the US economy which have kept inflation from returning to the Fed’s 2% target rate.
A stronger US dollar would place further downward pressure on commodity prices, in particular the already weak price of oil, which would in turn feed into lower inflation, perhaps prompt a bout of deflation.
As a result, the US bond market reckons there’s only a 30% now of a rate rise being announced on September 17, after the Fed meeting. That’s a big drop from more than 60% a week or so ago, according to some data.
The AMP’s chief economist, Dr Shane Oliver reckons “it would also seem unlikely for the Fed to want to hike at this point with the markets seemingly unprepared for it, given the uncertainties around the outlook.”
The average hourly wage paid to American workers rose 0.3% in August. The typical worker earned $25.09 an hour, up 8 cents from the prior month. From August 2014 to August 2015, hourly wages rose 2.2%. Annualized increases in pay have stuck to a tight range of 1.9% to 2.2% since 2012. The amount of time people worked each week edged up 0.1 hours to 34.6 in August. The labor-force participation rate was unchanged at 62.6%.
Despite the steady increase in consumption, inflation remained muted. Inflation, which has persistently run below the Fed’s 2 percent target, dominated the discussions at the Fed’s July 28-29 policy meeting.
A price index for consumer spending rose 0.1 percent, slowing from a 0.2 percent increase the prior month. In the 12 months through July, the personal consumption expenditures (PCE) price index rose 0.3 percent for a second straight month.
Excluding food and energy, prices edged up 0.1 percent for the fourth straight month. The so-called core PCE price index rose 1.2 percent in the 12 months through July, the smallest rise since March 2011. It increased 1.3 percent in June.
The US labour market offered some further evidence of improvement in August, with the unemployment rate falling and wage growth ticking higher, even as the jobs tally missed expectations
Although the 173,000 jobs created last month fell shy of the 217,000 forecast, revisions to July’s tally, quicker wage growth and a 5.1 per cent unemployment rate suggest the labour market has maintained some momentum.
Economists had forecast the unemployment rate would dip to 5.2 per cent from 5.3 per cent in July.
Although the American economy is currently grappling with the challenge of a stronger dollar and deteriorating picture overseas, it’s now clocked seven years of steady, if rarely spectacular, expansion.
The focus on August’s jobs report has been especially feverish with less than two weeks to go until policymakers at the US Federal Reserve gather for their September rate-setting meeting.
Despite the squall in markets during the last month, and deepening unease over the health of the Chinese economy, a recession-trapped Brazil and sluggish eurozone, Fed officials have sought to leave open the option of lifting the bank’s key interest rate this month.
Having previously signalled their ambition to raise the Fed funds rate from the 0 per cent to 0.25 per cent range it’s been in since the financial crisis, their other options for ‘lift-off’ are the October and December meetings.
And the health of the labour market has, broadly, been the strongest single impetus to end the era of easy money that was unleashed in late 2008 to ward off another depression in the US.
While jobs growth has slowed from 2014’s monthly average of 260,000, it’s clocked 211,000 so far this year as the unemployment rate heads towards 5 per cent.
Until recently, the bigger potential obstacle has been the low level of inflation even after seven years of economic growth.
