Today’s August jobs reportwas weaker than expected. U.S. nonfarm payrolls increased by just 169,000, which was a bit lower than the 180,000 expected by market economists.
Even worse, July’s number was revised down to 104,000 from 162,000, and June’s number was revised down to 172,000 from 188,000.
The big question on everyone’s minds: Will this dissuade the Federal Reserve from tapering its quantitative easing program later this month?
Some think so and they attribute today’s stock market strength to that possibility.
However, JP Morgan’s Michael Feroli disagrees.
While he acknowledges that today’s report wasn’t great news, he argues that it is far from a gamechanger when it comes to monetary policy decisions. From his note to clients today (emphasis added):
Regarding the Fed, we think today’s number leaves them on track for a $US15 billion taper at the September meeting, with a risk of a smaller, $US10 billion move. One argument we have heard against tapering is the softness evident in the July jobs number, and to a lesser extent in August. It is statistical insanity to think that in any twelve-month period with job growth averaging 184,000 that each month’s outcome should be less than 80,000 away from that average, and even crazier to call 169,000 a disappointment relative to that average. As far as the unemployment rate, we are now within shelling distance of the 7% “vicinity” figure that the Chairman has referenced — analogous to baseball’s vicinity rule — as consistent with the end of asset purchases. It is true that today’s move in the rate appears driven by declining participation, but Committee members may gradually be making their peace with a falling participation rate (cf Williams’ comments earlier this week). Moreover, to the extent the doves have highlighted that the unemployment rate understates the degree of labour market slack, they usually do so with reference to the 6.5% threshold policy, not the 7% vicinity rule. To get even close to that plan, the Fed will need to begin tapering soon.
The Fed will hold its next Federal Open Market Committee (FOMC) meeting on September 17 and 18. Economists expect to hear about the taper at the conclusion.
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