Underwhelming US jobs number reduces rate hike prospects

Added 2nd September 2016

The latest United States employment data fell short of the average monthly gains in 2016, leaving many questioning the probability of an interest rate increase in September.

Underwhelming US jobs number reduces rate hike prospects

Total non-farm payroll employment rose by 151,000 during the month, well underneath the average monthly gain of 204,000 over the past 12 months, according to the findings from the Bureau of Labor Statistics.

The actual August employment figure fell short of the median forecast by 19,000 jobs and was also considerably weaker than last month’s 255,000 job creation.

Although several sectors, including food services, technical services, healthcare and financial activities continued to add jobs throughout the month, job growth remained static in sectors like construction, manufacturing and retail trade. The mining sector sustained its downward momentum, reporting 4,000 further job losses in August.

The BLS’ findings also revealed that the unemployment rate remained at 4.9% for the third consecutive month.

“There was a quiet confidence the US economy would put in a bigger than expected number on Friday and pick up where June and July left off,” said Marcus Bullus, trading director at MB Capital. “It didn’t prove to be. After this mildly disappointing August print, a rate hike in September is less likely but it’s still on the table. The markets were largely agnostic about the August print but there is likely to be a degree of limbo between now and the Fed’s decision later this month,” he argued.

And “Janet Yellen may yet decide to try to get ahead of the curve” by implementing an incremental and controlled tightening. “What the Fed doesn’t want is to be playing catch-up and having to hike more sharply, which could leave the economy looking vulnerable,” said Bullus.

Royal London Asset Management economist Ian Kernohan thinks the shortcomings of the August employment figures requires a greater degree of urgency on the Fed’s part.

 “While the latest US labour market report was reasonably solid, and certainly did not give any indication of economic slowdown, an even stronger report was needed to make a September Fed hike virtually certain. The Fed will not raise rates if markets aren’t expecting a move, so if they are intending to take action, they only have a few weeks left to shift expectations,” said Kernohan.

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