The Employment Situation in September – Loosening the Hawks’ Grip

Today’s employment report was disappointing on all fronts: weak payroll growth, downward revisions to prior months, and another decline in the participation rate. The unemployment rate was unchanged only because the labor force shrank faster than the number of employed persons.

The Bureau of Labor Statistics (BLS) reported that payroll employment expanded by 142 thousand in September, well below expectations. Revisions to the previous two months subtracted 59 thousand jobs. The household survey showed a decline in the labor force of 350 thousand, 236 thousand fewer persons employed, resulting in no change in the unemployment rate at 5.1%, and a decline in the labor force participation rate to 62.4%.

This report is certain to give policymakers at the Federal Reserve pause. The September meeting of the Federal Open Market Committee (FOMC), the monetary policy setting arm, concluded with no increase in interest rates, citing global economic and financial developments and their likely impact on US economic growth. A concern that slowing global growth, China in particular, and shaky stock markets around the world would restrain US economic activity and continued labor market improvement motivated the decision to take more time to evaluate conditions (FOMC).

The inflation hawks and doves at the Federal Reserve were largely in agreement that economic growth and the labor market are strong enough to begin raising interest rates sometime this year. The weakness in today’s labor market report, if sustained, will strengthen the doves’ case for waiting longer and loosen the hawks’ grip on the monetary policy lever.

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