Weekend Economists Kickoff the Season, September 6-8, 2013

[Demeter]

9. Job growth disappoints, offers cautionary note for Fed

http://news.yahoo.com/faster-u-job-gains-expected-may-spur-fed-053055925--business.html

U.S. employers hired fewer workers than expected in August and the jobless rate hit a 4-1/2-year low as Americans gave up the search for work, complicating the Federal Reserve's decision on whether to scale back its massive monetary stimulus this month. Nonfarm payrolls increased by 169,000 jobs last month, the Labor Department said on Friday, falling short of the 180,000 Wall Street had expected and adding to signs that economic growth may have slowed a bit in the third quarter. While economists believe the Fed could still announce a tapering of its monthly bond purchases at its September 17-18 policy meeting, they said the weak data increased chances of a delay.

"A compromise between hawks and doves might be that the tapering will be announced in September but that the purchase amount will be reduced by an even smaller amount than we currently anticipate," said Harm Bandholz, chief U.S. economist at Unicredit Research in New York.

The U.S. central bank has been buying $85 billion in bonds per month to hold interest rates down. A Reuters poll of big bond dealers conducted after the jobs data was released found that 13 of the 18 institutions expect the Fed to dial back its purchases this month. Of those 13, the median forecast was for a cut of $15 billion. The dollar fell from a seven-week high against the euro and slumped against the yen after the jobs report. The data also fueled a rally in U.S. government bonds, with the yield on the benchmark 10-year note falling back below 3 percent. U.S. stocks ended little changed as investors remained jittery over a potential military strike against Syria.

Not only did hiring miss expectations last month, but the job count for June and July was revised to show 74,000 fewer positions added than previously reported. While the unemployment rate fell a tenth of a percentage point to 7.3 percent, its lowest level since December 2008, the decline reflected a drop in the share of working-age Americans who either have a job or are looking for one. That participation measure reached its lowest point since August 1978, a further sign of underlying economic weakness. The rate for men touched a record low.

"Declining participation is bad for financing entitlements long-term and the potential economic growth trend," said John Silvia, chief economist at Wells Fargo in Charlotte, North Carolina.

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