Hilsenrath’s Take: Soft Jobs Numbers Likely to Stay Fed’s Hand in October

Hilsenrath’s Take: Soft Jobs Numbers Likely to Stay Fed’s Hand in October

Still, Fed officials may be reluctant to drop their plan to raise interest rates this year

By JON HILSENRATH

Updated Oct. 2, 2015 10:05 a.m. ET

Friday’s soft jobs numbers are unlikely to produce panic at the Federal Reserve about the health of the jobs market, but the report does reduce the likelihood the central bank will raise interest rates at its policy meeting later this month.

Payroll growth was softer than expected in September and the government revised down estimates of job growth in August and July. That suggests that headwinds are building on the U.S. economy from a strong dollar and weak growth overseas. Some of the soft sectors are exposed to global trade and pricing. Mining employment contracted in July, August and September; manufacturing employment contracted in August and September.

Fed officials have been looking to raise rates this year because of labor-market strength. Not only has job growth assured them they are getting closer to their goal of full employment, it also suggested slack in the economy is diminishing and could lead to inflation pressures down the road.

Fed policy makers decided not to raise rates in September because they wanted to see how the U.S. economy tolerated headwinds from overseas. The September employment report will only compound their worries that these headwinds could crimp the expansion and thus will likely stay the central bank’s hand this month.

In futures markets, investors placed just a 2% probability of a Fed rate increase at its policy meeting Oct. 27-28. The probability of a move in December shifted down to 29%, from more than 40% earlier this week.

Still, the U.S. has experienced soft patches in job growth before in this expansion and the economy got back on track. For a stretch between December 2013 and February 2014, for instance, job growth averaged 154,000 a month, less than the 167,000 average of the past three months. Between May 2013 and July 2013 it averaged 170,000, and between April 2012 and June 2012 it averaged 78,000.

Hiring could get on track again. Moreover, officials have been expecting job growth to slow from its quick pace earlier this year and last. Because labor-force growth is slow, the U.S. doesn’t need to produce a lot of jobs to keep the unemployment rate low. Indeed, even though job growth slowed in September, the jobless rate held steady at 5.1% and a broader measure of unemployment that includes part-time workers who want full-time jobs and discouraged workers fell to 10%. That reading, known as the U-6, is now below its 20-year average of 10.7%.

Fed officials thus likely will be reluctant to drop their plan to raise interest rates this year without more evidence of a fundamental shift in the U.S. outlook.

http://www.wsj.com/articles/hilsenrath-analysis-jobs-report-lowers-chances-of-fed-rate-hike-this-month-1443790670