Economists React to the August Jobs Report: ‘A September Rate Hike Is Basically a Coin Flip’
U.S. employers added 173,000 new jobs in August, below forecasted gains, but the unemployment rate fell more than expected—to 5.1% from 5.3% the previous month—due to a smaller labor force. The data offers a mixed bag for Federal Reserve officials as they contemplate raising interest rates for the first time since 2006. Here’s what economists had to say about Friday’s report:
“Today’s employment report supports our view that the Fed is likely to begin their rate hike cycle at the Sept. 17 [Federal Open Market Committee] meeting. Payroll gains remain healthy enough and the unemployment rate inched below the Fed’s year-end target. Although a lot can still happen in the nearly two weeks before the meeting (and equity market moves remain a threat), this report keeps the Fed on track for tightening.” —Maury Harris, UBS
“This jobs report should tip those who are waverers on the FOMC to agree to a rate hike at the Sept. 16-17 FOMC meeting. Although payrolls were a bit light relative to consensus expectations, we expected this because of the apparent initial underreporting bias exhibited by the August payroll data in the last six years (our forecast of 175,000 was consistent with an underlying increase of 225,000). Most importantly, the unemployment rate dropped to 5.1%, which is in the middle of the Fed’s estimated range of full employment (5.0%-5.2%), and wage increases edged higher.” —John Ryding and Conrad DeQuadros, RDQ Economics...MUCH MORE
“Many at the Fed were hoping for a clear-cut robust employment report solidifying the notion that the U.S. economy—and specifically the U.S. labor market—was gaining momentum and increasingly able to withstand—and justify—a rate increase. This morning’s report, however, while offering pockets of improvement, appears to be a net win for the doves on the committee, offering yet another data point to suggest the appropriate course of action for rates is lower for longer. —Lindsey Piegza, Stifel Nicolaus & Co.
“[U]nfortunately, today’s jobs report doesn’t make the issue [of the first Fed rate hike] clearer. On the ‘go’ side, we’ve got a dip in the u-rate coupled with increased hours and wages. On the ‘no go’ side, we’ve got a [nonfarm payrolls] number that’s not quite one standard deviation away from the summer’s average. The reality is that a September rate hike is basically a coin-flip event, and we believe the Fed will settle that flip by calling ‘edge.’ In this case, that means a 10 to 15 basis point micro hike.” —Guy LeBas, Janney Montgomery Scott
“The dip in the unemployment rate was in line with the underlying trend and should not come as a surprise to anyone but the Fed, which has consistently underestimated the downward pressure over the past few years….So far, unemployment falling much faster than the Fed has expected has not triggered a rate hike, but the room for maneuver is now very small….We think market volatility will keep the Fed on hold this month, but October is a real possibility and with a sub-5% unemployment rate likely facing the FOMC at the December meeting, we’d be surprised if they could wait any longer. Policy is set to deal with the end of the world, and that isn’t happening.” —Ian Shepherdson, Pantheon Macroeconomics
"The August Jobs Report in 10 Charts" (and a couple thousand words)