Weak Jobs Report Adds to Uncertainty on Fed’s Move

A disappointing jobs report on Friday raised doubts about whether the Federal Reserve will start pulling back on its stimulus program in a few weeks. The Labor Department's reports on the jobs numbers has several discouraging details including a large drop in the share of Americans who are either working or looking for work, which has hit its lowest level sine 1978.

Published: September 6, 2013
NY Times

A disappointing jobs report on 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 on 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, the 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 last year, and the unemployment rate edged down to 7.3 percent 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 the Federal Reserve chairman, Ben S. Bernanke, has said the economy would reach when the Fed ends its asset purchases altogether around the middle of next year. Mr. 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 that falling labor force participation is permanent, that they’re probably not too worried about that factor,” Mr. 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 last 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 United States economist for IHS Global Insight.

Still, he said, there are concerns about the quality of jobs being created. The industries driving hiring, like retail and food services, are more likely to hire part-time workers and operate on just-in-time schedules, making it difficult for employees to predict how many hours they will have from week to week.

“It’s really frustrating not knowing whether I’ll have money to pay rent and my bills,” said Charles Eden, 20, who works at a Wendy’s in St. Louis for $7.60 an hour. Last week, he had 30 hours; this week, 12. Ideally, he wants 40. “It’s really hard to find a second job not knowing whether I can work or whether I can’t work in a given week.”

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.

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