Lousy Jobs Data Mean Fed Will Not Taper in September: Nariman Behravesh

Friday's jobs report for August may have reported a fall in the unemployment rate, but not because hiring increased. The unemployment rate dropped from 7.4% in July to 7.3% in August, the lowest level since December 2008, because many workers stopped looking for jobs and dropped out of the labor force.

By Bernice Napach
September 6, 2013
Yahoo! Finance

Friday's jobs report for August was a lot like the July jobs report-- payrolls rose less than expected—169,000 vs. 180,000—and the unemployment rate fell, but not because hiring increased.

The unemployment rate dropped from 7.4% in July to 7.3%-- the lowest level since December 2008—because many unemployed workers stopped looking for jobs and dropped out of the labor force. The labor participation rate, which measures the share of people in the labor force, fell to to 63.2% in August—the lowest level in 35 years.

The August jobs report is expected to figure prominently at the Fed's next meeting on September 17 and 18 when policymakers discuss how soon the Fed can start to reduce its asset purchases--the so-called tapering.

"The Fed will look at the reasons for this [unemployment rate] drop and at the same time look at the downward revisions in payroll employment in July and July," says Nariman Behravesh, chief economist at IHS, a global consulting firm. "I suspect when they put that all in the blender they'll come out with a decision not to start tapering this month and probably wait till December at the earliest."

Fed policymakers have pledged to continue asset purchases until “the outlook for the labor market has improved substantially,” but that's not the scenario painted by today's jobs report. In addition to the disappointing rise in August payrolls, June and July payrolls were revised downward by a total 74,000.

Other reasons the Fed could delay its tapering past September: the upcoming debate on the debt ceiling and continuing budget resolution, the ongoing sequester budget cuts and uncertainty about oil prices due to growing tensions with Syria.

"It would be a little premature for the Fed to tighten now," says Behravesh. "There are still a lot of question marks about the strength of the recovery and about some other potential shocks out there. Best guess the Fed will wait."

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