USA shares inched higher and European shares rallied on Friday after weaker-than-expected U.S.jobs data gave the Federal Reserve more leeway to stand pat on interest rates, while the dollar gained and longer-dated Treasury yields edged up.
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June and July employment gains were revised down by a net 1,000.
“Overall, it still looks like the job market is doing well”, said Michael Feroli, chief USA economist at JPMorgan Securities LLC in NY, who projected a 150,000 gain in payrolls.
Fed Chair Janet Yellen, Vice Chairman Stanley Fischer and most other US central bankers remain confident further improvement in the labor market will gradually lift prices to the central bank’s 2 percent objective. “IHS Markit believes that in the near term, USA payrolls will increase at an average monthly rate of around 175,000, which implies a steady unemployment rate”.
Investors foresee only a 21 percent chance of a rate increase this month, according to futures markets, down from 24 percent on Thursday. It was a solid jobs report but lacked the punch needed to spur the Federal Reserve to hike interest rates in September, analysts say.
“Some Fed officials were anxious the economy was set to blow past full employment, which would be problematic because returning the economy to full employment without triggering a recession would be hard”, he explained.
While the August jobs report will be closely scrutinized, it may be less reliable than other monthly jobs figures. It’s not all-around strong enough to assure a September interest rate hike.
Still, there were some soft spots in the report.
But annual growth slowed from 2.7% the prior month, the best gain in seven years.
Oil prices were up about 1.5 percent, supported by the previous session’s weakness in the dollar and Russian comments in favor of a production freeze.
The jobless rate has been halved in the last seven years and consumer spending remains strong, but wages have only recently begun a slow climb.
The August gain was smaller than economists had expected.
Analysts and economists differ on whether this report will influence the Federal Reserve open market committee, which will decide on September 20 and 21 whether to raise the federal funds rate. True, unemployment is very close to what economists see as its so-called natural rate, the level beyond which inflation tends to become a problem. Manufacturing employers cut their workweek to 40.6 hours and the average workweek for production employees also decreased to 33.6 hours.
The August employment report released Friday will sharpen the debate.
Still, record numbers of workers remain out of the labour market altogether, widening the gap between the haves and the have-nots and depressing wage growth.
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Rate hike probabilities for September and December had risen after last Friday’s remarks by Fed chairwoman Janet Yellen that the case for raising rates had strengthened in recent months. “As people become more confident, they will probably spend more”.
