Rapid Reaction: Economists Say Steady Job Growth May Incite Fed To Move Rates In December
Though the labor market looks increasingly steady, September's job gains missed expectations for 176,000 job gains with 156,000 new jobs created for the month, up from the 151,000 jobs created in August.
Economists told Bisnow this year's job growth deceleration was of little surprise as monthly job gains have been decelerating since they peaked in 2014.
Most economists believe the US Federal Reserve has enough incentive to move interest rates in December, though recessions and perceived global uncertainty facing many global trading partners could delay the Fed's decision.
"Employers added 156,000 net new payroll jobs in September, slightly below the 172,000 jobs forecasted in Bloomberg’s survey of economists. Year-to-date job growth has averaged 178,000 per month, down from 229,000 in 2015 and 251,000 in 2014. This gradual deceleration suggests the labor market is approaching full employment.
Strong demand coupled with rising wages is bringing people back into the labor force in search of a job, reducing labor market "slack" left over from the recession. This is one of the reasons why the Federal Reserve has been reluctant to raise interest rates. It doesn’t want to short-circuit this process.
Nevertheless, the Fed is likely to raise rates by a quarter-point at its December meeting. It can’t wait too much longer because inflation is beginning to stir."
"From a run-rate perspective, year-to-date job growth has been slower than the comparable period from last year. However, it should be noted that monthly average job growth peaked in 2014—we already experienced a slight slowdown in the number of jobs being created in 2015, relative to the prior year.
This year marks another period of deceleration, but this should come as no surprise given how tight the labor market has become. Estimates show that the US economy only needs to add between 100,000 to 150,000 jobs per month at this point to keep the official unemployment rate at or below 5%.
Given that backdrop, the Fed certainly enjoys some tailwind support for a rate increase later this year. Whether or not they should raise interest rates now, amidst higher perceived global uncertainty and outright recessions plaguing several major trading partners, is a different question.
Could the Fed delay rate increases, given little inflationary pressure? Yes. But if it does, and we run into an economic slowdown in the near future, it will have less arrows in its quiver of monetary policy. They are really in a "damned if you do, damned if you don’t" position right now, and given the benefit of hindsight they should perhaps have raised rates several times when the local and global economy were stronger back in 2014."
"The September jobs report came out at the low band of expectations. The gain of 156,000 new jobs is an improvement over September 2015 at 149,000 and a slight decrease over the prior month.
I expect that we will see continuing strength in job creation on an average basis through the end of the year. I do not agree we have reached any sort of peak and that October through December will show gains meeting expectations, especially after the all-important revisions.
It is becoming evident that BLS Bingo is now being played by the Federal Reserve and it both calls into question that judgement while at the same time assuring they have cover for a rate increase of 25 (basis points) in December. With the unemployment rate being around 5%, and the real underemployed rate probably closer to 15%, job gains have to be viewed in terms of position type. We still have too few higher-wage jobs, which adds to the affordability issue and affects job mobility, a looming threat."
"The August number was only slighty lower than the new expectations of closer to 150,000 to 175,000 jobs a month, with the lower expectations due to demographics now that the unemployment rate has come down to 5%. The report shows that 58% of industries are continuing to grow.
As long as job growth continues on this pace through December, and the aftermath of the election does not create a disturbance in markets, we believe the Fed will move in December. It would take multiple months of employment growth 100,000 higher or 100,000 lower than 156,000 to adjust the Fed’s path."
