Economists Weigh In: Do April's Poor Jobs Numbers Rule Out A Fed Rate Hike?

The US economy added 160,000 jobs in April, according to the Department of Labor's jobs report, making April the weakest hiring month since September 2015—and flying in the face of Bloomberg and Wall Street Journal surveys of top economists who on average expected 200,000 and 205,000 jobs added, respectively. Given the poor employment showing, Bisnow sat down with top economists for their take on the odds of a June Fed rate hike.

Bob Bach, director of research – Americas - Newmark Grubb Knight Frank

"A June rate hike is not off the table. The April employment report wasn’t as disappointing as the coverage suggested. Unseasonably warm weather earlier in the year pulled forward some construction hiring and distorted seasonal adjustment factors for retail hiring, two key sectors that underperformed last month. Moreover, maximum employment is only half of the Fed’s dual mandate. The Fed is also focused on stable prices, and inflation has been drifting higher lately, even though the Fed’s favorite measure—the core PCE deflator—at 1.6%, remains below its target rate of 2%. The labor market is in pretty good shape, and inflation is on the move, which—in normal times—would be considered precursors of a rate hike in the late stages of a recovery. But we’re not in normal times. The pace of the recovery remains tepid (first quarter GDP of 0.5%), reducing the odds of a June hike. The odds of a rate hike are better in September or later."

Jack Kern, director Of research and publications - Yardi

"The April jobs report will likely be revised to a higher number in the next monthly release and consequently not have much of an impact on the Fed’s decision about raising rates. Overall, the monthly increase in employment hovers around 200,000/month and so alarm bells aren’t going off anyplace. The real question for the Fed will be how much longer they can hold on to the false notion that they have effective accommodative options left. It is extremely likely that rates will rise 25 bps before the end of the summer and another 25 bps before year-end. Most of that is already baked into markets and Wall Street tires of waiting. While some sectors that the Fed follows (Janet Yellen is a data junkie) are slowing, most still indicate stable growth. Seasonality will still provide surprises and wage inflation will trigger more reasoned policies, but overall the April report on its own won’t matter a great deal."

Victor Calanog, SVP and chief economist - Reis

"The clouds in the economic horizon appear to be gathering, and April’s jobs report complements the picture of an economy that is growing far too slowly for the Federal Reserve to maintain a confident stance about rate hikes. While Q1 GDP figures suggest that consumption still seems somewhat resilient, the latest earnings reports from companies like Disney, Macy’s and Nordstrom suggest that even this key component of the economy might not remain as ebullient as it has been. The chances are high that the Fed will adopt a wait-and-see approach this June."

Ken McCarthy, chief economist - Cushman & Wakefield

"Interesting question. I don’t think a June rate hike is off the table. The unemployment rate is low, wage growth is picking up and the core PCE deflator has increased at a 2.1% annual rate over the latest three months. As the impact of falling oil prices wanes and import prices rise, inflation is turning up and the Fed is very concerned about inflation, especially in a near-full-employment economy. My feeling is the Fed will want to see more inflation numbers and the May jobs report before making a decision. If these come in strong, they will act in June."

Ray Torto - Harvard lecturer, retired global chief economist at CBRE

"I think the employment reports are reflecting a strong economy in the US. And the number of jobs opened in a month will be greater than the number of people employed, or added to the payroll. You will see a shortage of labor to fill these job over the summer. We see it already in help wanted signs in store windows and in employment surveys.

So yes, the Fed should get ahead of the curve and raise short-term rates in June. However, as of this writing, I think they are too focused on the volatility of the financial and oil markets and unable to make the decision to raise short-term rates. 

My answer is that if I was on the FOMC, I would vote for an increase, but I do not think the Fed will secure a majority for such a move."

Christopher Thornberg, economist and founding partner - Beacon Economics

"No, the jobs number did not put off a Fed rate hike, because there was no rate hike in the system anyway. There's absolutely no reason for them to hike right now. The labor number was an irrelevant point on an irrelevant conversation, because with a slowing world economy and wobbles in the financial markets, they're not going to do that."