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 The economy added 173,000 jobs in August, quite a bit fewer than
expected. But employment growth in June and July were revised
higher, wages rose more than expected in August and the jobless rate
fell to a seven-year low of 5.1 percent.
With global financial markets reeling over the last two weeks over
fears of a Chinese economic slowdown, the report is probably the
best and last direct reading on the economy before Fed officials
consider hiking rates at a Sept. 16-17 meeting.
Yet the report disappointed those looking for clarity.
"With this jobs report ... the Fed finds itself in a real
uncertainty jam when it comes to a September interest rate hike,"
Mohamed El-Erian, chief economic adviser at Allianz, in Newport
Beach, California, said in an email.
"In the run-up to its policy meeting, the Fed will pay even greater
attention to global market developments."
According to Fed policymakers gathered in Jackson Hole, Wyoming last
week, not only would the August jobs report need to be decent but
market gyrations would need to dissipate for them to act.
Decency was evident in the jobless rate falling to a level many U.S.
central bankers see as full strength, while growth in wages and the
number of hours worked across the country suggested Americans have
more money to spend.
U.S. stocks on Friday fell sharply as investors weighed the chances
of a Fed rate hike. Oil prices also fell.
For many, the report simply reinforced their previous views on the
timing of the pending rate hike.
"I'd call this a good ... employment report. It didn't change the
picture for monetary policy," Richmond Fed President Jeffrey Lacker,
who favors a prompt policy tightening, told a retailer conference in
Richmond, Virginia.
Others highlighted the fact that the economy produced nearly 50,000
fewer jobs than expected in August. Still, average job growth in the
last three months is 221,000, seen as enough to keep pushing the
jobless rate lower.
Employment growth for the month of August in particular has a
history of being initially underestimated and later revised higher
by the U.S. Labor Department.
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Wall Street's top banks still expect the Fed will raise interest
rates this year, but their conviction around a September hike has
decreased notably in the last month due to volatility in global
markets, a Reuters poll found.
Ten of 17 banks that deal with the Fed directly said they expect a
rate hike in the fourth quarter of 2015 or later. Only seven dealers
expect the tightening this month compared to 13 in an early August
poll.
Bets in futures markets imply investors see roughly a 20 percent
chance the hike will come this month.
Fed Vice Chair Stanley Fischer said last week that there was "a
pretty strong case" to tighten before the market slump, and that
now, "we are still watching how it unfolds."
While data on the broader U.S. economy has remained healthy, the
U.S. central bank wants reasonable confidence that inflation will
rebound in the medium term before it raises rates. The rising dollar
has also held U.S. prices down.
"It's really inflation that has been holding them back, and this
(jobs report) doesn't really give them any evidence on that front,"
said Thomas Simons, money market economist at Jefferies & Co, in New
York.
The Fed's policy decision "will break down to how commodities react
between now and the September meeting," he said. "If commodities
recover and stabilize then there's a chance (of a hike); otherwise I
don't think it's likely to happen."
(Reporting by Jonathan Spicer in New York and Jason Lange in
Richmond; Additional reporting by Jennifer Ablan in New York;
Editing by Clive McKeef and Andrea Ricci)
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