US economy adds only 142,000 jobs, raising doubts about interest rate rise

Janet Yellen

The US economy added only 142,000 jobs in September, raising doubts about whether the Federal Reserve will raise interest rates before the year’s end.

The unemployment rate remained steady at 5.1%.

Friday’s report by the Department of Labor fell short of expectation as economist expected employers to add 206,000 jobs.

Gus Faucher, senior economist at PNC, said that he is “not taking much solace in the fact that the rate held steady” as it was only because the US labor force participation declined 62.4%, from 62.6% during the past three months. This is the lowest labor force participation rate since 1977.

“There is no question that this is a disappointing report. Normally, if you get this kind of a report, you might find some silver linings in it. There is nothing here that I would point to as a silver lining,” Faucher said on Friday. “Unemployment rate was steady but we still had big declines in the labor force. Average hourly earnings were flat. We got downward revisions to July and August and pretty substantial ones.”

When US markets opened on Friday stocks plunged, with the Dow opening down 200 points, or 1.23%. The S&P 500 was down 1.3%, as was Nasdaq.

Last month, the non-farm payroll figures for June and July were revised up, causing the unemployment rate to drop to 5.1%. August’s numbers were lower than expected, although many economists pointed out that the figures for August are usually revised up. However, in Friday’s report, the figures for both July and August were revised down.

July’s figure was revised from 245,000 to 223,000, and the change for August was revised from 173,000 to 136,000, meaning that 59,000 fewer jobs were created than previously reported.

Over the past 3 months, job gains have averaged 167,000 per month. Last month, that figure was reported to be 221,000 per month.

So far in 2015, job growth has averaged 198,000 per month, compared with an average monthly gain of 260,000 in 2014, according to the US Labor Department.

US unemployment jobs interactive

Janet Yellen, chair of the US Federal Reserve, said in September that continued job growth and 2% inflation would indicate that US economy was ready for a hike in interest rates.

Yellen has said she expected that interest rates would be raised before the end of the year if the US economy continued to show signs of improvement.

The US markets have been on a wild ride the past couple of months thanks to China’s market turmoil, Greece’s debt crisis and the uncertainty about the interest rate hike. In her press conference announcing that the Fed would not raise interest rates in September, Yellen said that the slowing in China’s economy had long been expected and that it was not the Fed’s policy to respond to up and downs in the markets.

“We are not going to see a rate increase in October – we haven’t been expecting one but I think this kind of rules that out,” said Faucher. “That being said, I think that the December rate hike is still on the table. It’s looking certainly more iffy than it did even just a few days ago. If I were on the Federal Open Markets Committee [of the Federal Reserve], I’d be looking very closely at this report and thinking very hard about whether I want to raise rates in December.”

Jim O’Sullivan, chief economist with High Frequency Economics, agree that the Fed will hold steady this month, but added that there are two more jobs reports before it meets again in December.

September’s weak jobs report is only a temporary weakness, said Faucher.

“The thing that puzzles me is that other indicators have looked very solid in late September. Housing market, generally, is looking good. Consumer spending is good. We had a great number on auto sales yesterday,” he said. “So there seems to be a disconnect between what we are seeing in the economy and what we are seeing in the labor market.”

Powered by Guardian.co.ukThis article was written by Jana Kasperkevic in New York, for theguardian.com on Friday 2nd October 2015 14.43 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010

 

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