The August jobs report cannot have been comforting for the tapering advocates at the Federal Reserve.
The economy created 169,000 positions last month, a performance on par with the 180,250 monthly average this year though less than the 180,000 median forecast.
But the totals for June and July were revised lower by 74,000, leaving July at 104,000 for the lowest number of new positions since 87,000 last June. Even the 0.1 percent improvement in the unemployment rate to 7.3 percent, a post-recession low, was because 312,000 workers left the labor force and was coupled with a 0.2 percent drop in the labor force participation rate to 63.2 percent, a thirty-five year low.
There is little sign of the acceleration in employment that the Fed had often cited as a precondition for the end of quantitative easing. The economy created an average of 182,750 jobs each month in 2012, virtually identical with the average so far this year.
Manufacturing payrolls added 14,000 workers in August but that comes after five straight months of losses and is hardly the type of upward trend the Fed says it is seeking. Household employment, a far more volatile statistic, and one that often leads the statistics from the company survey that produces the payrolls number has actually declined since last year. The monthly average this year of 108,000 is barely half the 208,000 average in 2012.
Yet despite the lack of movement in the labor market, the economy is still creating an average of almost 200,000 new positions a month. In making its decision the Fed will look at the whole economy, not just the employment picture despite its repeated public focus on jobs.
When the Fed assesses statistics in the wider economy, from the purchasing managers’ indexes to leading indicators, home sales, jobless claims, consumer confidence, personal income and spending and contemplates the marginal effect of higher interest rates on the economy, the combined positive movement will probably be enough to justify the first small reduction in quantitative easing.
Today’s mediocre employment report will not dissuade the Fed from its chosen course.
Chief Market Strategist