Fed's Confidence Not Shaken by Plummeting Jobs Numbers


Total nonfarm payrolls rose 160,000 in April, far short of the 202,000 consensus expectations from economists and a steep decline from the 208,000 jobs gained in March. "Job gains occurred in professional and business services, health care, and financial activities. Job losses continued in mining,” according to the Bureau of Labor Statistics. In total, professional and business services added 65,000 jobs in the month, the biggest contributor to job gains. The unemployment rate was unchanged at 5%.

Several other data points were alarming. The average workweek remains low, rising by just 0.1 hour to 34.5 hours. Hourly earnings, however, showed signs of renewed strength, increasing above the rate of inflation. Hourly earnings rose 2.5% on a year-over-year basis to $25.53.

The steep decline in payroll growth makes April the weakest month for the labor market of 2016, and the weakest month since September 2015. Meanwhile, the labor force participation rate also fell to 62.8%, slightly above the lows hit in 2015, but still far below the rate seen in the United States since 1979. The employment-to-population ratio also fell to 59.7%, as the rate of population growth (roughly 184,000 people per month) exceeded the growth in jobs.

Dismissive Fed

The Federal Reserve dismissed the numbers as “reasonable” in a hint that the Central Bank’s monetary policy will not lighten up to help workers as fiercer competition for fewer jobs among more workers continues throughout America.

Federal Reserve Bank of New York Chairman Bill Dudley acknowledged the jobs report was “a touch softer;” Dudley also said that the Fed is still on track to raise interest rates twice in 2016.

"It’s a touch softer, maybe, than what people were expecting, but I wouldn’t put a lot of weight on it in terms of how it would affect my economic outlook," Dudley said in an interview with The New York Times.

Merrill Lynch economists also see a September rate hike. "Despite some Fed officials making the case for a ‘live’ June FOMC meeting, we have been struck since early this year by Fed Chair Yellen’s strongly dovish tone,” wrote Merrill Lynch economist Michael Hanson. "Thus we now expect the Fed will hike one more time this year, in September. This very gradual hiking pace continues in our view with two hikes for 2017, in March and September."

While many market participants believe a rate hike is coming, the weak data has many investment banks moving their predictions from a hike in June to one in September. Goldman Sachs analysts told clients in an email that they expect a rate hike to “come in September,” pointing partly to Fed Chairman Janet Yellen’s recent dovish tone. "In light of weaker-than-expected payrolls and recent Fed communication, we no longer expect a rate increase at the June FOMC meeting,” the email said.