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The latest jobs report shows the unemployment rate was down to 3.9 percent in April, the lowest level since December 2000. But wages are only up 2.6 percent from a year ago. I joined the CBS Evening News to explain what that means for workers.
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The unemployment rate edged down to 3.9 percent in April, the lowest level since December 2000. To put that into perspective, the top song in the U.S. that month was “Independent Woman, Pt 1” by Destiny’s Child, long before Beyoncé Knowles was known as “Queen Bey” or had a “Beyhive” with millions of followers! But I digress. According to the New York Times, “In the last 60 years, there has been only one sustained period where unemployment stayed below 4 percent: the late 1960s.”
With the labor market slowing down, will the Federal Reserve raise interest rates at its next policy meeting in two weeks? That was the big question after the Labor Department reported that the economy added a disappointing 138,000 jobs in May, worse than the 185,000 analysts had expected. Additionally, the previous two months were revised lower by 66,000, putting the three month average at just 121,000. In the first five months of 2017, the economy has seen average monthly job creation of 162,000, down from 189,000 in 2016, and 226,000 in 2015.
The economy added 173,000 new jobs in August and the unemployment rate edged down by two tenths of a percent to 5.1 percent, the lowest level since the spring of 2008. Although the top line job creation number was short of expectations, the previous two months were revised higher; putting monthly job creation at 213,000 this year and the three-month average at 221,000. With job creation remaining consistently above 200,000 over the past year and the unemployment rate within the Fed’s desired range of 5 to 5.2 percent, the central bankers may believe that the economy is now out of the intensive care unit and no longer requires emergency-level medicine in the form of zero to a quarter of a percent interest rates. As Mark Spindel, CEO and CIO of Potomac River Capital, LLC, noted: “The strength of the U.S. economy came through loudly and clearly in the employment figures announced this morning. As for raising rates, if not now, when?”
That would be perfectly reasonable thinking, if global markets were not in turmoil over a potential hard economic landing in China and the ripple effects that a Chinese slow down is causing in emerging markets and natural resource exporting countries like Canada, Australia, Brazil, Mexico and Russia.
Minutes after the jobs report was released, Mohamed El-Erian, chief economic adviser at Allianz SE and Chair of President's Global Development Council told me “It’s a really tricky call as domestic and external factors are locked in a complex tug of war – domestic economic conditions warranting a hike but global ones urging patience and caution. If global financial instability continues, I suspect that they will wait rather than hike in September.”
As volatility in global financial markets amped up in late August, El-Erian said “The window [to raise short-term interest rates] was open a few weeks ago when you had strong domestic economy, which you still do, you had pretty neutral international economy and the financial markets were in relatively good shape,” but global uncertainty has “turned violently against the Fed, so I don’t think the Fed will take the risk of hiking in this environment, because if it makes a mistake, it will end up making a mistake that will spill back on to the U.S. economy.”
The International Monetary Fund agrees with El-Erian. In a note prepared for the Friday kick off of a two-day G-20 Finance Ministers and Central Bank Governors meeting in Turkey, the IMF warned that “global growth remains moderate, reflecting a further slowdown in emerging economies and a weak recovery in advanced economies. In an environment of rising financial market volatility, declining commodity prices, weaker capital inflows, and depreciating emerging market currencies, downside risks to the outlook have risen, particularly for emerging markets and developing economies.” As a result of that assessment, central banks’ “monetary stance must stay accommodative.”
Paul Ashworth of Capital Economics summed up the debate, when he noted that the August employment report “can be used to make a case for or against a rate hike at the upcoming FOMC meeting. As far as we’re concerned, the September meeting is a 50-50 toss-up. Nevertheless, even if the Fed doesn’t hike rates this month, it won’t leave rates at near-zero for much longer.”
MARKETS:
THE WEEK AHEAD:
Mon 9/7: US MARKETS CLOSED FOR LABOR DAY
Tues 9/8:
6:00 NFIB Small Business Optimism
3:00 Consumer Credit
Weds 9/9:
10:00 Job Openings and Labor Turnover (JOLTS)
10:00 Quarterly Services Survey
Thurs 9/10: 8:30 Import/Export Prices
Fri 9/11:
8:30 Producer Price Index
10:00 Consumer Sentiment
