It looks like the Federal Reserve will not need to act its upcoming FOMC policy meeting in a few weeks. The Labor Department reported that the economy created 151,000 jobs in August and the unemployment rate remained at 4.9 percent. Because June and July showed robust gains of over 270,000 each, the three-month job average now stands at 232,000. But for all of 2016, there has been an average of 163,000 jobs added per month, well below the nearly quarter of a million monthly pace of the past two years.
While economists say that the fall off is expected in the eighth year of a recovery, taken together with the recent slowdown in manufacturing and persistently low inflation, the Federal Reserve will likely put an interest rate increase on the back burner until December. According to the futures markets, traders see just a 12 percent chance of a hike at the September meeting, down from 27 percent before the announcement. Odds of a December increase are 50-50.
The report also highlights a divide between economists about the state of the US economy. Paul Ashworth of Capital Economics noted, “There is a long history of the initial August payroll estimate coming in below consensus expectations and then being revised higher” and the firm has been upbeat about the state of consumer spending and its ability to propel growth in the second half of the year.
Stephanie Pomboy of MacroMavens believes the situation is more problematic. Last week, before the unemployment report was released, she told the New York Times, “After the bursting of the housing bubble and the Great Recession, there has been a generational shift away from spending toward saving among consumers. The great consumer credit boom of the 1980s, 1990s and 2000s is over…this new impulse to save leads to a sluggish pace for growth.”
Regardless of which side wins the long-term intellectual battle, the fact that both growth and inflation remain so low, in the short term we know that the Fed will not raise rates at least until December.
Mon 9/5: LABOR DAY…US MARKETS CLOSED
9:45 PMI Services Index
10:00 ISM Non-Mfg Index
10:00 Job Openings and Labor Turnover Survey
2:00 Fed Beige Book
3:00 Consumer Credit