Slowdown in job creation and uptick in unemployment should not deter Fed from raising rates in December. Non-farm payrolls in the US rose by 156,000 month-on-month (m-o-m) in September, below consensus expectations, while nonfarm payrolls in July and August taken together were 7,000 lower than previous estimates. All in all, this was a slightly disappointing report, in contrast with a string of strong US economic indicators published in recent days, including the ISM indices for September.On a rolling month by month basis, job creation has softened since June, but this slowdown needs to be put into context. The US economy is approaching full employment and barring an increase in productivity growth, such a gradual slowdown in job creation is all but inevitable at some point. In any case, the pace of job creation should matter less for US monetary policy than structural shifts in labour supply, participation rate and cyclical developments in wage dynamics. From this perspective, the September job report looks slightly more encouraging, yet not strong enough to trigger a profound shift in the Fed’s stance.The US unemployment rate rose to 5.0% in September from 4.9% the previous month, above the Fed’s median projection of 4.8% for Q4 2016. Yet the slight increase in the unemployment rate in September is unlikely to worry the Fed as the participation rate increased as well.
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Frederik Ducrozet and Nadia Gharbi considers the following as important: Macroview, US employment report, US nonfarm payrolls, US participation rate, US wage growth
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Slowdown in job creation and uptick in unemployment should not deter Fed from raising rates in December.
Non-farm payrolls in the US rose by 156,000 month-on-month (m-o-m) in September, below consensus expectations, while nonfarm payrolls in July and August taken together were 7,000 lower than previous estimates. All in all, this was a slightly disappointing report, in contrast with a string of strong US economic indicators published in recent days, including the ISM indices for September.
On a rolling month by month basis, job creation has softened since June, but this slowdown needs to be put into context. The US economy is approaching full employment and barring an increase in productivity growth, such a gradual slowdown in job creation is all but inevitable at some point. In any case, the pace of job creation should matter less for US monetary policy than structural shifts in labour supply, participation rate and cyclical developments in wage dynamics. From this perspective, the September job report looks slightly more encouraging, yet not strong enough to trigger a profound shift in the Fed’s stance.
The US unemployment rate rose to 5.0% in September from 4.9% the previous month, above the Fed’s median projection of 4.8% for Q4 2016. Yet the slight increase in the unemployment rate in September is unlikely to worry the Fed as the participation rate increased as well.
Wages rose by 0.2% m-o-m in September (2.6% year-on-year) and the average work week increased to 34.4 hours. As a result, aggregate weekly payrolls rose by 4.1% quarter on quarter (q-o-q) in Q3 (after +3.2% q-o-q in Q2). Looking ahead, we still forecast wage growth to rise only gradually over the next few quarters.
We continue to expect 2.5% GDP growth in the US in Q3 2016, with only modest upside risks, and 1.5% on average in 2016. Other economic data have been strong, but not strong enough for the Fed to hike rates just days before the presidential election on 8 November. We are therefore sticking with our forecast of a 25 bps December hike in base rates in the US.