With 173,000 added positions, job creation in August was the slowest in five months and significantly undershot consensus expectations of about 220,000.
But that negative economic signal was offset by several other data points in the report – including the notable fall in the unemployment rate to 5.1%, the lowest level since April 2008, the upward revisions to previous months’ numbers, the longer hours worked and a pickup in wage growth.
On its own, this report probably wasn’t sufficiently decisive to tip the Fed’s decision – one way or the other – about
when to begin its campaign to raise interest rates for the first time in more than nine years. It didn’t provide the kind of strong data that suggests the US economy could easily withstand the adverse impact of weaker global growth and financial market volatility – a clarity that would have provided clear justification for a hike in September. But nor did the August data clearly signal that such a move would be ill-advised.
Instead, the middling snapshot adds to the uncertainty the Fed must take into account as it weighs the countervailing effects of a healing US economy and the increasingly fragile global economic and financial context. The Fed will be monitoring global financial conditions even more intensely in the weeks ahead. And it probably will have no choice but to base its next policy decision on an uncertain judgment call about the way its words and actions will influence global financial conditions. The central bank dislikes making decisions under such circumstances and wouldn’t want to advertise that its hand had been tipped in such a manner.
If markets continue to oscillate – as they did in recent weeks – the Fed will be forced to delay a rate hike, unless it wishes to test the robustness of the global financial system and risk damaging fragile and tentative real global economic activity.
This article was originally published on Bloomberg View.