Better Performance of US Economy in July May Allow Federal Reserve Rise

The odds of a rate increase-based on trading in Fed-funds futures-at the September meeting were 56% Friday, compared with 46% before the jobs report and 48% Thursday, according to traders.

U.S. stocks fell Friday after a solid jobs report kept alive the possibly that the Federal Reserve may raise interest rates as soon as next month.

The Fed has held its key short-term rate near zero since late 2008, a policy introduced after the financial crisis to try to energise the economy through stronger borrowing, investing and spending. Revisions to prior reports added a total of 14,000 jobs to overall payrolls in the previous two months. “Status quo is hardly a step in the right direction, making it hard for the Fed to justify a near-term rate increase”. The unemployment rate held steady but is already at the levels the Fed expected it to be at by the end of the year. Employment growth was steady, in line with trends and expectations, and broad based across sectors and demographic groups. “With only one more employment report before the September FOMC meeting, it would probably take a sharp slowdown in job growth in August… or even negative job growth for the FOMC to delay their initial rate hike until December”. Average hourly earnings last month increased 2.1 per cent from a year earlier.

Experts believe this might be enough to convince officials at the US Fed, including chair Janet Yellen, that the economy can withstand a hike in interest rates. Common hourly pay rose simply 2.1 % in July from a yr earlier – far under the three. “Markets, economists, and analysts expect it”. The addition of the word “some” to the statement was intended to imply a slightly lower threshold for the labor market than previously. That put them 2.1 per cent above the year-ago level, but well shy of the 3.5 per cent growth rate economists associate with full employment. This likely reflects the impact of the Affordable Care Act, as many pre-Medicare age women no longer need to rely on their jobs to get insurance for themselves or family members.

Given that evidence, a reasonable person might say the economy is strong enough to allow interest rates to rise a bit in September.

While the underemployment rate captures significantly more people than the standard unemployment figure, it is not surprising that states with high rates of one measure nearly always have high rates of the other measure as well. But the Fed would only have abandoned its September timetable had the increase in jobs been 150,000 or lower, rather than 215,000.

Oilfield giants Schlumberger and Halliburton and many others in the oil and gas industry have announced thousands of job cuts in the past few months.

Sure, the pace of hiring is steady, but it’s still too slow to absorb all of the available labor force and significantly boost wages. The 0.2 percent advance was the smallest in data going back to 1982 and followed a 0.7 percent increase in the first quarter. Wages also ticked up 0.9% in July on a seasonally- adjusted basis after a downturn in the spring, a sign that companies are more focused on retaining workers.