Economists React to the August Jobs Report: ‘A September Rate Hike Is Basically a Coin Flip’ – Real Time Economics

Job seekers fill out registration forms before entering a summer career fair.
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U.S. employers added 173,000 new jobs in August, below forecasted gains, but the unemployment rate fell more than expected—to 5.1% from 5.3% the previous month—due to a smaller labor force. The data offers a mixed bag for Federal Reserve officials as they contemplate raising interest rates for the first time since 2006. Here’s what economists had to say about Friday’s report:

Today’s employment report supports our view that the Fed is likely to begin their rate hike cycle at the Sept. 17 [Federal Open Market Committee] meeting. Payroll gains remain healthy enough and the unemployment rate inched below the Fed’s year-end target. Although a lot can still happen in the nearly two weeks before the meeting (and equity market moves remain a threat), this report keeps the Fed on track for tightening.” —Maury Harris, UBS

This jobs report should tip those who are waverers on the FOMC to agree to a rate hike at the Sept. 16-17 FOMC meeting.  Although payrolls were a bit light relative to consensus expectations, we expected this because of the apparent initial underreporting bias exhibited by the August payroll data in the last six years (our forecast of 175,000 was consistent with an underlying increase of 225,000).  Most importantly, the unemployment rate dropped to 5.1%, which is in the middle of the Fed’s estimated range of full employment (5.0%-5.2%), and wage increases edged higher.”  —John Ryding and Conrad DeQuadros, RDQ Economics

“Many at the Fed were hoping for a clear-cut robust employment report solidifying the notion that the U.S. economy—and specifically the U.S. labor market—was gaining momentum and increasingly able to withstand—and justify—a rate increase.  This morning’s report, however, while offering pockets of improvement, appears to be a net win for the doves on the committee, offering yet another data point to suggest the appropriate course of action for rates is lower for longer. —Lindsey Piegza, Stifel Nicolaus & Co.

“[U]nfortunately, today’s jobs report doesn’t make the issue [of the first Fed rate hike] clearer.  On the ‘go’ side, we’ve got a dip in the u-rate coupled with increased hours and wages.  On the ‘no go’ side, we’ve got a [nonfarm payrolls] number that’s not quite one standard deviation away from the summer’s average.  The reality is that a September rate hike is basically a coin-flip event, and we believe the Fed will settle that flip by calling ‘edge.’  In this case, that means a 10 to 15 basis point micro hike.” —Guy LeBas, Janney Montgomery Scott

“The dip in the unemployment rate was in line with the underlying trend and should not come as a surprise to anyone but the Fed, which has consistently underestimated the downward pressure over the past few years….So far, unemployment falling much faster than the Fed has expected has not triggered a rate hike, but the room for maneuver is now very small….We think market volatility will keep the Fed on  hold this month, but October is a real possibility and with a sub-5%  unemployment rate likely facing the FOMC at the December meeting, we’d be surprised if they could wait any longer. Policy is set to deal with the end of the world, and that isn’t happening.” —Ian Shepherdson, Pantheon Macroeconomics

“The latest jobs data will leave everyone maintaining their position on the Fed. Not the decisive data the Street wanted.” —Steven Ricchiuto, Mizuho

Video: UBS Investment Bank economist Sam Coffin shares his outlook for the U.S. economy on the heels of the August employment report.

“Allowing for the tendency for August to be underreported initially, the employment data generally look more than strong enough to support the start of Fed tightening at this month’s meeting.  Nonetheless, we expect officials will hold off for now due to the risks raised by weakening in global growth and turmoil in markets.  We expect they will be tightening very soon.” —Jim O’Sullivan, High Frequency Economics

“Outside of the sub-200,000 print on payrolls, which could be due to statistical quirks that tend to occur around this time of the year, the Fed will look at this employment report with some comfort that the recovery in the labor market is continuing. The headline number fell short of consensus, declining to 173,000 (market expectation was for a 217,000 print) from the upwardly revised 245,000 print the month before. Net revisions, however, were quite positive, with a further 44,000 jobs being added to payrolls, adding to the encouraging feel of this report. Nevertheless, we do believe that this report will have limited bearing on the actual policy stance as the key rub for the Fed remains the outlook for both growth and inflation, and this report will have very little informational value on this front. As such, we continue to feel that a September hike is unlikely.” –Millan Mulraine, TD Securities

“There is little in the August report, nor in the past several even with the upward revisions, to give the Fed any sense the U.S. economy is accelerating. If anything, the momentum seems to be slowing….It is obviously ridiculous that the Fed’s Sept. 17 decision should only come down to one employment report. Problem is, this employment report comes out in the midst of an accelerating slowdown in China that may or may not adversely affect [the] U.S. directly or indirectly through its impact on capital market pricing….If economic uncertainty was too great in the spring, it is hard to believe the world is much more certain today for the FOMC to move in September.” –Steve Blitz, ITG Investment Research

“Bottom line, the U.S. economy is now in a growth slowdown and core inflation measures are moving lower and further away from the Fed’s target of 2%. The earliest window for a potential FOMC rate hike is December 2015, but the odds of a rate hike before the end of the year are declining considerably.” –Brian Bethune, Alpha Economic Foresights

“In general, U.S. economic data have been conducive to an initial tightening move on Sept. 17, but movements in global financial markets and fears of a sharp slowdown in China’s economic growth have caused many to conclude that a September move by the Fed is now doubtful. We think that there is likely to be a spirited debate at the FOMC meeting. Therefore, despite a stated intention to be as ‘transparent’ as possible, it would appear that the meeting is going to be a cliffhanger unless the intervening days bring some clear signals through public comments from Fed officials who have yet to voice a definitive opinion on the issue. At the moment, it appears that Oct. 28 is very narrowly more likely for liftoff than is Sept. 17.” – Joshua Shapiro, MFR

“This report holds somewhat ambiguous implications for the Fed, with the relatively low number of net new jobs as well as a drop in the unemployment rate…-Although the lower unemployment rate conflates the Fed implications of this report, the market is likely to view today’s report as weak enough to prevent the Fed from raising rates in September. As for what the Fed will actually do, there is still almost two weeks’ worth of time for the Fed members to voice thoughts on policy.  The Fed speak ahead of the Sept. 17 decision will be critical.” –Jason Schenker, Prestige Economics

If stock prices remain far less volatile (VIX in mid 20s) and hold the substantial rebound from the closing lows on August 25, if WTI oil price remains above $40 per barrel, the dollar/euro stays above 110, the dollar/yen stays below 124 and the dollar/yuan stays below 6.45, and if the August retail sales report shows solid auto and back-to-school spending as we noted above, then a September 25 basis points funds rate hike is more likely than not. Admittedly, those are a lot of ifs, which is why the FOMC’s decision is going to come down to the wire.  But like Tom Brady will now say’ready, set, hike’ on Sept.10 in the opening game against the Steelers, the FOMC should say the same at the conclusion of their meeting on Sept. 16- 17!” Stuart Hoffman and Gus Faucher, PNC

“The jobs report delivers, hits its numbers, and Fed liftoff is assured….The unemployment rate, at the finish line! It drops two-tenths from 5.3% to 5.1% today—hallelujah, Janet Yellen’s single best indicator of the labor markets is at full employment. Wages, for you Fed members who lament there aren’t any, average hourly earnings up 0.3% and 2.2% year-to-year, beating the forecast for 0.2 and 2.1%….We’ve waited long enough. The economy is normal, and interest rates deserve to be too.  For the Fed’s game the delay clock, has run out.  Take the shot. You won’t regret it.  The economy is better than you think.” —Chris Rupkey, MUFG Union Bank

Related reading:

August Jobs Report — The Numbers

The August Jobs Report in 10 Charts

August Jobs Came in Low—By 1/33 of a Percentage Point

August Jobs Report: Everything You Need to Know

Interactive: Job Market Tracker

 


 


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4 September 2015 | 2:28 pm – Source: blogs.wsj.com

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