The weak September jobs report and downward revisions to the prior two months raised fresh fears about the health of the USA economy, which appears to have weakened amid a slowing global economy and recent market turbulence.
Nonfarm payrolls increased a seasonally adjusted 142,000 in September, far below the trend over the past 18 months, the Labor Department said Friday. “While the market may not like higher rates, they especially don’t like a weaker economy“. The unemployment rate was forecast to hold at 5.1 percent, a near 7-1/2 year low. Bond yields fell, with the benchmark 10-year Treasury note dipping below 2%.
Central bankers who led the charge to pull the global economy from a cliff during the financial crisis now risk becoming bit players, ill-equipped to snap the world out of sluggish growth and its addiction to cheap credit.
Even though the Richmond Fed President Jeffrey Lacker said on Thursday, a rate hike could still come from The Federal Reserve this month, there have been conflicting signals from the US economy that raise doubts about this possibility. Odds of a December rate hike fell to a little over 27 percent, compared with 44 percent shortly before the report.
The Fed’s decision not to raise rates from near zero in September, as it waits for signs of strengthening inflation, added to the uncertainty.
If the average hiring rate of over 200,000 a month keeps up, it will generate wage inflation from skills shortages that will inevitably become more common. August figures were also revised sharply lower.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.3 percent, and was on track for a weekly gain of 1.2 percent after posting its poorest quarterly performance since 2011 with a decline of 17 percent.
USA consumers are spending at a healthy pace, boosting job gains in sectors like retail and hotels and restaurants. It “strengthens the case that the Fed will be forced to stay on hold over the remainder of the year”.
Major employers letting workers go include Hewlett-Packard (HPQ), which shed 30,000 and Caterpillar (CAT), which cut 5,000 jobs and plans to cut more.
So far this year, job gains have averaged 198,000 a month this year, a solid total, but below last year’s average of 260,000. The drop in oil prices, along with the appreciation of the dollar that has put pressure on USA manufacturers, are among the developments related to slowing growth in China and elsewhere overseas that Fed officials have said are likely to prove “transitory”, rather than a threat to tip the US into recession. The government said 136,000 new jobs were created in August instead of 173,000. The Institute for Supply Management (ISM) said on Thursday its index of national factory activity fell to 50.2, its lowest since May 2013 and just below the median forecast in a Reuters poll. By the time the FOMC met on September 16, the unemployment rate had fallen to 5.1%, the level that the Fed had earlier identified as full employment.