The modest 96,000 increase in US non-farm payrolls in August only increases theprobability that the Fed will launch QE3 next week and it isn’t going to help President Obama’s re-election chances either. The gain was well below the 130,000 consensus forecast, with markets probably hoping for something even stronger after the better ADP and initial jobless claims yesterday. In addition, the already modest gains in the preceding two months were revised down by a collective 41,000. Manufacturing employment shrank by 15,000, thanks partly to a 8,000 drop back in auto sector jobs. The more modest 7,000 decline in public sector employment could be considered good news perhaps. There were plenty of other discouraging signs in this report, however, with temporary employment stagnant last month, average hourly earnings unchanged, and average weekly hours worked unchanged in August, but only because July’s figure was revised lower. Despite all this weakness, the unemployment rate actually fell back to 8.1% last month, from 8.3%. But only because the labour force contracted by a massive 368,000, which dwarfed the 119,000 decline in the household survey measure of employment. Under those circumstances, it is hard to characterise the drop in the unemployment rate as any sort of good news. Stripping out the swings in the labour force, the employment-to-population ratio dropped to a 12-month low of 58.3%, from 58.4%, suggesting that no progress has been made in reducing labour market slack over the past year. The participation rate dropped to a 30-year low of 63.5%. This failure to fulfill the full employment side of its dual mandate is why the Fed is expected to launch another round of large-scale asset purchases at next week’s FOMC meeting.
EasyForexNews Research Team