US Watch
Group Economics Macro & Financial Markets Research Maritza Cabezas, +31 20 343 5618
Job market steps down a bit
2 October 2015 • •
The US labour market was weaker than expected in September. Employment rose by 142K up from 136K the previous month. The unemployment rate was unchanged at 5.1%. We think this report will not substantially change the view of the Fed regarding the strength of the labour market. However, a sustained improvement in the job market in the coming months will be needed to support our view of a rate hike in December.
Job report weaker than expected
Yellen asks for sustained improvement in job market
The September payroll report was weaker than expected.
As for the Fed, we think this report will not change the view of
Nonfarm employment increased 142K, below the 212K
the central bank regarding the strength of the labour market. It,
average for the first eight months of this year. There were also
however, puts more weight on the incoming job market reports
downward revisions in the previous two months amounting to 59K. The other key aspects of the establishment survey were also a bit disappointing. Average hourly earnings were unchanged from an increase of 0.4% the previous month. This left the year-on-year increase unchanged at 2.2%. Other
to be released before the December meeting. It will take now a sustained improvement in the labour market to keep a December rate hike on track. Chair Yellen mentioned during her latest intervention on “Inflation Dynamics and Monetary Policy”, a sustained improvement in the labour market was needed, despite that the unemployment rate may now be close
aspects of the report showed that the unemployment rate
to its longer run normal level – around 4.9%. A sustained
remained at 5.1% in September. This occurred alongside a
labour market improvement, according to Chair Yellen, should
participation rate that edged down to 62.4%, from 62.6% the
reduce slack in other dimensions, including labour force
previous month. Broader measures of underutilisation
participation rate and persons employed involuntary part-time
improved, as persons employed involuntarily part-time for
from economic reasons.
economic reasons ticked down to 10%. Overall, we see the labour market shifting down slightly, but after a period of robust
Market expectations of rate hike dampened
job creation.
Following the jobs report, according to futures markets, investors priced in a slightly lower probability of Fed rate hikes
Goods-producing sectors remain weak
this year, leading to lower short-term Treasury yields. Indeed,
Goods-producing sectors have been having some hard times
October is off the table now. Investors see an 8% likelihood of
in the previous two months, with employment dropping 13K in
an increase during the October FOMC meeting compared with
September, after falling 22K in August. Manufacturing
16% before the jobs report. The odds are now 28% in
employment remains weak (-9K). Meanwhile, Job growth in the
December compared to 36% previously.
service sector showed some improvement, gaining 131K. Leisure and hospitality continue to look healthy (+35K),
US economy adds 142K jobs
together with retail trade (+24K).
000’s
Wage mystery Average hourly earnings, were unchanged (0%). On a yearon-year basis, wage growth was 2.2%, also unchanged from the previous month. We think that slower productivity growth could be keeping wages supressed, since higher wages in a context of slow productivity growth reduce profit margins.
%
600 400 200 0 -200 -400 -600 -800 -1000
12 10 8 6 4 2 0 06
07
09
10
Non farm payrolls (lhs) Source: Thomson Reuters Datastream
12
13
15
Unemployment (rhs)