“Since January … the manufacturing sector has netted zero net new jobs, with 27,000 workers lost in just the past two months”, noted Chad Moutray, chief economist for the National Association of Manufacturers. One indicator: The number of people stuck in part-time jobs, or not actively looking for work (and hence not counted as unemployed), remained unusually large by historical standards.
There were other signs of persistent weaknesses that the Fed views as showing slack in the jobs market. Modest growth and steady, if unspectacular, hiring hasn’t encouraged more people to look for work.
With the average workweek falling to 34.6 hours, weekly pay climbed just 1.9% vs. a year earlier, down from 2.9% in February. But lacklustre growth overseas has sharply reduced exports of factory goods. Europe is still weak. Even when the economy is running at full speed (like it was in 2000 and in 2006), there are usually about 12 million people who say they’d like to get a job. Manufacturing and mining have been hurt by cutbacks in drilling and exploration following the plunge in oil and commodities prices.
A result is that economists now expect the Federal Reserve to delay a long-awaited increase in interest rates, possibly until next year. Officials have signaled a rate rise by year end is still in the cards, but Friday’s report could give them a few pause. The drop in hours and wages indicates that there is little demand pressure to increase employment. It “strengthens the case that the Fed will be forced to stay on hold over the remainder of the year”. Hope for upward revisions to the low August numbers were dashed as well.
The Dow Jones closed up 1.2 per cent, while the S&P 500 closed up 1.4 per cent. The Nasdaq prevailed throughout the day and closed 1.7 per cent up. Yields on government bonds also fell.
The recent pace of job growth should have been enough to push the unemployment rate lower because only around 100,000 new jobs are needed a month to keep up with population growth. But financial services reported no gain, and hiring in education and health fell to the lowest level in almost a year. Then US markets were roiled by reports that suggested China’s economy was slowing, a contraction that would have a ripple effect throughout global emerging markets and one that could eventually impact USA growth.
A weaker-than-expected report “would chip away at confidence about the strength of the expansion”, Ryan Sweet, a senior economist at Moody’s Analytics Inc.in West Chester, Pennsylvania, said before the report.