Tepid US job growth supports Fed’s cautionary stance

Washington: US employers added far fewer workers than expected in September, suggesting a loss of momentum in the economy that would likely add to the Federal Reserve’s caution in deciding when to trim its monthly bond purchases.

Non-farm payrolls increased 148,000 last month, the labour department said on Tuesday. While the job count for August was revised to show more positions created than previously reported, employment gains in July were the weakest since June 2012.

Economists polled by Reuters had expected the economy to add 180,000 jobs in September.

“This report on the labour market will soften people’s assessments of current conditions,” said Cary Leahey, a senior economist at Decision Economics in New York.

But there was some silver lining in the report, with the unemployment rate dropping one-tenth of a percentage point to 7.2%, the lowest level since November 2008.

The jobless rate is derived from a separate survey of households, which showed an increase in employment last month.

US treasury debt prices rose on the report, while the dollar fell against the euro and the yen.

The closely watched monthly employment report was released more than two weeks later than originally scheduled because of the partial shutdown of the federal government earlier this month.

Signs the economy lost steam even before the acrimonious budget fight could convince the Fed to hold off any decision on scaling back its bond buying until the extent of the economic damage from the fiscal standoff is clear.

Economists estimate the 16-day government shutdown shaved as much as 0.6 percentage point off annualized fourth-quarter gross domestic product, through reduced government output and damage to both consumer and business confidence.

Fed officials will meet next week to discuss monetary policy, on 29-30 October. They surprised markets last month by sticking to their $85 billion per month bond-buying pace, saying they wanted to see more evidence of a strong recovery.

Now, many economists think the Fed will hold off on scaling back economic stimulus until next year.

“With the possibility of a replay of the budget showdown as early as mid-January, why would the Fed want to pull any levers now? It’s hard to expect any tapering of the Fed’s bond purchases until the budget mess straightens itself out,” Leahey said.

There are fears lawmakers will engage in another bruising round early next year when Congress must agree on a budget to fund the government and once again raise the nation’s borrowing limit.

Employment gains in September were mixed last month, with government payrolls increasing 22,000 jobs after rising 32,000 in August. Both state and local governments added jobs last month, offseting the decline in federal employment.

 

RANJAY KUMAR

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