Investors generally took the lackluster August jobs report as a sign the U.S. Federal Reserve will hold off announcing a tapering of its $85 billion a month bond program at the Sept. 17-18 Federal Open Market Committee (FOMC) meeting.
The Labor Department reported today (Friday) that U.S. job growth last month increased by a less-than-expected 169,000 jobs, adding to signs that economic growth likely slowed in the third quarter. The unemployment rate dipped in August to 7.3% from 7.4%. Economists were looking for employers to have increased headcount in August some 180,000.
So what will the Fed do?
We asked Money Morning Chief Investment Strategist Keith Fitz-Gerald.
"The 'so-bad-it's-good' theme continues," Fitz-Gerald told us this morning. "The softness of the jobs number clearly perpetuates the hope for further stimulus."
But if there is a delay in Septaper, investors must remember it won't be permanent...
"While the markets are excited by the prospect of more 'free' money, the bogeyman remains in the shadows," Fitz-Gerald said. "Eventually the party will end. And, when it does, every new dollar put in now makes for a potentially very rocky ride."
Fitz-Gerald said we could still see some Fed action come mid-September - and investors need to be ready for a market reaction.
"The Fed is under increasing pressure to taper without destroying the financial markets; this number wasn't soft enough to remove the possibility of a 'test-taper' this fall," he said. "Whether the taper is $10 or $10 billion doesn't matter. The markets are going to have a 'taper-tantrum.'"
The "Bad" August Jobs Report
Along with the dreary August jobs report came significant downward revisions for the previous two months.
Job growth in July was revised down to a thin 104,000 from the initially reported 162,000. June's figure was revised downward to 172,000 from an earlier estimate of 188,000.
However, this month's unemployment rate decline came for a discouraging reason: Scores of Americans have stopped looking for work and are no longer counted among the unemployed.
"Unemployment dropped as yet more people left the workforce. That's bad any way you cut it because the smaller workforce means lower future growth," Fitz-Gerald explained. "People haven't put two and two together yet."
The size of the workforce declined by roughly 300,000, and the participation rate - a key measure of employment - dropped to 63.2% from 63.4%, its lowest level since August 1978.
Also discouraging is that the length of the work week ticked up to an average (still weak) 34.5 hours. Average hourly earnings rose a measly five cents, and temporary employment rose by 13,000.
Employers continue to shift some positions to part-time and wring more work out of full-timers in attempts to curb costs they face under upcoming Obamacare. The number of involuntary part-timers seeking full-time work is a whopping 8.2 million.
Businesses have an incentive to create part-time jobs in lieu of full-time ones because they don't have to provide health insurance to part-timers.
The Globe and Mail:
U.S. Job Growth Misses Expectations, Offers Cautionary Note for Fed