Friday, October 2, 2015
The disappointing jobs report has put a big question mark over the health of the U.S. economy and the course of Fed policy. This report shows that the growth questions that prompted the Fed to hold off on raising rates last month aren't restricted to China and the global economy alone - they are as much centered on the domestic economic scene as well.
Headline job gains for September came in at 142K vs. estimates of 200K and the prior month's tally of 136K (which was revised considerably lower: 136K vs. 173K originally). The originally reported tally for July was also revised lower to 223K from 245K originally. The year-to-date monthly pace of job gains now averages at 198K, though the pace for the last three months is much lower at 167K. This compares to the monthly average for 2014 of 260K.
As disappointing as the report's 'headline' miss is, the report's internals like revisions, wages and the workweek are even more disappointing. The negative revisions to the last two months, particularly for August, is very dramatic as the originally reported number for that month has a history of getting revised in the positive direction. The unemployment rate remained unchanged at 5.1%, but average hourly earnings were unchanged from the month before and the average workweek actually declined a bit.
What this means is that the U.S. economy lost its growth momentum in a notable way during the summer months, with GDP growth likely close to +1% in Q3 after the +3% pace in the preceding quarter. We have been seeing this in trade and manufacturing sector numbers, and this shows that the Fed's cautiousness on the liftoff question was more than justified.
The low unemployment rate notwithstanding, the Fed is justifiably hesitant to start the monetary policy normalization process given loss of growth momentum internally and disinflationary forces from abroad. Unless proven otherwise by incoming data over the next two months, today's report moves the liftoff decision to somewhere early next year - it seems to be off the table for this month as well as December.
Director of Research
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