The U.S. Labor Department recently released the disturbing news that our job growth for non-farm payrolls only rose 142,000 in September. Adding to the woes, labor gains in July and August were revised downward. The market was disappointed because economists surveyed by CNNMoney had predicted that 204,000 jobs would be added in September.
An employment number below 200,000 jobs is considered substandard.
Sung Sohn, an economics professor at California State University, put the labor number in perspective, saying: “It’s a very disappointing report across the board.”
Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management, summed up the report boldly: “You cannot throw lipstick on this pig of a report.”
Jobs and the Fed
What effect will the jobs report have on the Federal Reserve’s decision to raise rates?
This report diminishes the likelihood that the Federal Reserve will raise rates this month, but the Fed will keep its options open for the rest of the year. If job growth quickens in the final quarter, the Fed could raise rates either in December or early in 2016.
A slump in world trade, an economic slowdown in China and the strong dollar have hurt demand for U.S. exports. The manufacturing sector, which is very sensitive to a strong dollar, expanded in September at the slowest pace in more than two years.
Caterpillar, the world’s leading manufacturer of construction and mining equipment, cited the global slowdown as its reason for announcing that it would cut 10,000 job over the next few years.
Growth in China, the world’s second-largest economy, has slowed considerably, reducing its demand for raw materials. This will hurt U.S. exports and employment.
The Obama administration responded to the discouraging labor news with a different twist, citing political dysfunction: “If anyone is to blame for the U.S. economy slowdown, it is Congress.” Both President Barack Obama and Labor Secretary Tom Perez pointed to congressional inaction on issues such as the budget, transportation and infrastructure as reasons why the country’s economy was not growing faster.
Other issues
Aside from the tepid job growth, there are other worrying issues:
1. Unemployment has not risen above 5.1 percent partly because many people have stopped looking for work. The labor-force participation rate, which represents the number of Americans with jobs or actively looking for work, fell in September by 350,000 workers to 62.4 percent, the lowest level since the 1970s.
The decline in the participation rate is partly attributable to so-called “discouraged” unemployed workers who gave up looking for work. Data from the St. Louis Fed suggests that if the people who left the labor force since 2007 came back, our unemployment levels would be much higher.
2. Average hourly earnings rose only 2.2 percent in September. The Federal Reserve wants to see 3.5 percent wage growth.
3. Many economists estimate that U.S. economic growth slowed to an annual pace of 1 to 2 percent in the third quarter.
4. The Commerce Department said new orders received by U.S. factories fell 1.7 percent in August.
5. U.S. mining payrolls, which include energy-sector jobs, fell by 10,000 in September, the ninth straight month of declines
Until Friday’s labor report, I believed that the underlying strength of the U.S. economy warranted the Fed to raise interest rates this month. I now believe that the Fed should not raise rates until we enjoy at least two months in which job creation exceeds 200,000.
The Fed would be wise to maintain its wait-and-see attitude, especially given the volatility of our markets, the weakness in commodity prices, our stagnant wages, and global political turmoil.
Better yet, the policymakers should remember the refrain of the Brooklyn Dodgers: “Wait till next year.”
Originally published in the Sarasota Herald-Tribune
