Although latest reports suggest that the rate of job growth is declining, last week saw a surprise drop in the number of Americans claiming unemployment benefits, revealing a durable labor market.
The encouraging figures may not be enough to convince the Federal Reserve to hike rates at its upcoming policy meeting towards the end of this month. Gloomy services and factory industry activity and the downturn in job growth last month are more likely to be factors the Fed will sit up and take notice of.
“We haven’t seen a labor market this rosy for over forty years,” said Stuart Poulson, Head of Corporate trading at Nikko-Desjardins Asset Management. “The Fed is at a very important crossroads here, with rates far from normal levels, so should the economy turn nasty they don’t really have any recourse.”
There was a 3,000 decrease in primary unemployment claims for the week ending September 4th according to data from the Department of Labor, representing the lowest levels for over two months.
The financial markets in the U.S. were unmoved by the jobs report, with the greenback hitting a fortnightly low versus the euro amid a neutral stance by the European Central Bank regarding expansion of the bank’s asset buying scheme.
As concerns continue over chronically low inflation levels, the Fed has kept its benchmark interest rate steady. The last change was in December 2015, and that was the first adjustment in ten years.
Although hiring was still sluggish, data from the government revealed July job vacancies were at a record high, suggesting a probable skills deficiency, or over-skilled, in the potential workforce. The labor market, however, can still be seen as healthy.
Fed Chair Janet Yellen had previously announced that one hundred thousand new jobs would need to be created to keep up with growth, and the economy outperformed that figure by 50,000.
RDQ Economics analyst John Ryding attempted to pinpoint persisting issues, “Although the labor market seems tight on the surface, the underlying problem is trying to find people who are willing to work for the kind of wages that are being offered. There are plenty of vacancies but salary and skills are lacking on either side of the equation.”
The downturn in employment growth is to be expected as the recovery from the 2008 financial crisis shows its age, with significant cooling in the financial industry and also in the manufacturing sector.
