August jobs data could alter Fed plan on stimulus program
Friday’s snapshot of the job market had discouraging details underneath a relatively average number. Even so, several economists said hawks on the Fed are in control and will find enough bright spots in this report to justify a slowing of their stimulus program.
The New York Times
A disappointing jobs report Friday raised doubts about whether the Federal Reserve would — or should — start pulling back on its stimulus program in a few weeks, as Wall Street has been expecting.
The Labor Department’s snapshot of the job market in August had several discouraging details underneath a relatively average headline number, including a large drop in the share of Americans who are either working or looking for work. This measure, known as the labor-force participation rate, was at its lowest level since 1978.
Earlier estimates of job growth in July and June were also revised sharply downward, and hiring over the summer months was largely driven by low-wage sectors like retail, food services and health care.
Even so, several economists said they believed the hawks on the Fed are in control now and will find enough bright spots in this report to justify a slowing of their stimulus program after their meeting Sept. 17-18.
“There’s just barely enough in that report and in other forward-looking indicators we’ve seen to give Fed governors the confidence they need on the 18th to taper,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics, referring to a scaling back of the Fed’s monthly purchases of long-term Treasury bonds and mortgage-backed securities, which keep long-term interest rates low.
“For the record, I don’t think they should, given the risks posed by Syria and the impending fiscal chaos in Washington,” he said, noting the expected congressional battles over the debt limit and further austerity measures. “The costs of delaying until some of those factors are sorted out is not very great. But the Fed has given no indication it’s thinking that way.”
The number of payroll jobs added in August was 169,000, close to the average pace of hiring over the past year, and the unemployment rate edged down to 7.3 from 7.4 percent.
Unemployment fell for the “wrong reasons,” though, said Diane Swonk, chief economist at Mesirow Financial: because people dropped out of the labor force and so were no longer counted as unemployed, and not because more unemployed people found jobs.
But even so, the unemployment rate was already very close to the 7 percent level that Federal Reserve Chairman Ben Bernanke has said the economy would reach when the Fed ends its asset purchases altogether around the middle of next year. Bernanke has said that the Fed intends to begin reducing the monthly purchases “later this year,” widely interpreted to mean September.
“There seem to be enough people on the committee who are sufficiently enamored with the idea that falling labor-force participation is permanent that they’re probably not too worried about that factor,” Shepherdson said.
There were some bright spots in the report, however, including a tick upward in the average number of hours worked and a 5 cent gain in hourly wages for private-sector workers. Over the past year, average hourly earnings have risen by 52 cents, or 2.2 percent.
“It’s not just about how many jobs, but how much people earn in those jobs,” said Douglas P. Handler, chief U.S. economist for IHS Global Insight.
As of August, there were 7.9 million Americans who wanted to work full time but could find only part-time work. When these workers and people who want a job but have stopped looking are included, the total underemployment rate rises to 13.7 percent.
The labor-force participation rate remains so low partly because the population is aging and partly because workers are sitting on the sidelines as they wait for the economy to heal. The big decline in the labor force in August was due entirely to men dropping out; the number of women in the work force actually grew.
“This suggests that much of the decline came from occupations that are male-dominated, such as construction, and that many former workers are becoming discouraged about their job prospects and dropping out of the labor force as a result,” Handler said.
Three-quarters of the jobs added in August went to women, said Joan Entmacher, vice president for family economic security at the National Women’s Law Center. Most of the new jobs for women in August were in low-wage sectors, though, and men have captured most of the job gains since the recovery officially began in June 2009.