Anaemic Job Growth May Delay Fed Rate Hike

For good or ill, the level of unemployment in just about any economy is no longer the simple proportion of those looking for a job as a percentage of the total workforce. In many countries, you need to be “actively seeking” work to be considered as unemployed or even to be claiming unemployment benefits. People who are partially employed (i.e. working part time or working fewer hours than they would wish) are not included in the figures. These statistical acts of legerdemain flatter the true (traditional) unemployment picture, but are here to stay.

While the news that the US economy had created 142000 jobs in September sounds pretty good, the figure was way below market expectations for a figure of 205000 and caused a short-lived decline in US stock markets. The US workforce is expanding and something like 125000 jobs need to be created for the workforce participation rate to stand still as young people enter the job market (this is an excess, since every month a proportion of the workforce leaves to take retirement).

Figures for job creation are subject to review as more comprehensive data becomes available. It was hoped that fuller reporting would reveal better than thought job creation in July and August which were also relatively weak, but the opposite happened. The August figure was trimmed by 37000 to 136000 whilst the July figure was reduced by 22000 to 245000. The participation rate (proportion of the potential workforce in employment) has fallen to a 35-year low of 62.4%. The fact that unemployment has stood still at 5.1% despite an “additional” 17000 jobs being created over those needed to accommodate new entrants is blamed on the idea that more people are now “actively” seeking work, believing that there is a realistic prospect of getting a job.

Whilst it is unlikely that the Federal Reserve would raise rates by a significant margin when, finally, it does act, there is a perception that more “expensive” money may lead businesses to think twice before taking on new staff in order to expand. It is probable, therefore, that rates will remain unchanged until next year. The Fed has been at great pains to explain that any rate rise will be gradual and that the process will not start until they believe that the US employment situation is robust enough to withstand it – this policy has been unchanged since the tenure of Ben Bernanke. On-going (relative) weakness in the Chinese economy is having a knock-on effect on the global economy. The IMF, among others, has cautioned that a US rate rise will act as a further drag on global growth, so the tea leaves and portents would seem to suggest a “steady as she goes” approach for the time being.