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Published On: Fri, Sep 5th, 2014

US labor market stalls in August

The stall in the US labor market in August, with the fewest workers hired in the last eight months, can add to the reasons for the Fed to stave off raising interest rates.

US labor market stalls in August, with the fewest workers hired in the last 8 months; this can add to the reasons for the Fed to stave off raising rates.

The US labor market stalled in August, with the fewest workers hired for the last eight months. That can be yet another reason for the Federal Reserve to postpone hiking interest rates. Fed Chair Janet Yellen has been concerned about the lukewarm wage growth and by the still numerous part-time workers in America, although many of them are seeking full-time employment. The fact that many Americans still have long jobless periods is also adding to the issue.

Last month, nonfarm payrolls grew by 142,000, after their July expansion by 212,000. The jobless rate declined to 6.1 percent, shedding one-tenth of a percentage point, but that was also because people dropped out of the labor force. In manufacturing job growth stalled and retail payrolls dropped for the first time since February. But there was some slight relief in the slack labor market.

US stocks opened down a bit and the dollar declined against a basket of currencies. Interest rate futures, which previously pointed the likelihood of a rate hike in June next year, now augmented to show that probability had diminished a bit. And yet they indicated that dealers still believe the Fed would start raising borrowing costs in July.

Economists’s expectations were for a payrolls increase in August by 225,000. But many analysts were cautious because that was not consistent with other labor market indicators, e.g. first-time applications for unemployment benefits, which had remained around pre-recession levels.

The Fed has kept benchmark interest rates close to zero since December 2008. Now it points to the above metrics as signifying massive under usage of labor market resources which should be addressed by easy monetary policy. The labor force participation rate dropped to 62.8 percent in August from the July 62.9 percent.

On the other hand, there were some metrics showing improvement. A broad measure of joblessness, including people willing to work but unable to find a job and having quit searching and part-time workers who cannot find full-time employment, slumped to 12.0 percent, the lowest since October 2009. The number of Americans staying jobless for long periods reached the lowest since January 2009.

Average hourly earnings increased by 6 cents in August, an accelerated pace from July. And yet the year-on-year change was retained at 2.1 percent, thus pointing to just slight wage-related inflation pressure buildup.

The bulk of the August payrolls increase came from the private sector, with jobs increase by 134,000 after the July hike of 213,000. There was an increase in government employment, by 8,000, as teachers were hired for the school year.

Manufacturing payrolls declined to the weakest in a year. There had been an addition of a massive 28,000 jobs in July, as auto manufacturers decided to keep production running in the summer. In August, Auto payrolls had their first slump since March, falling by 4,600.

In construction employment, the rise was by 20,000, rising for the eighth straight month. The average workweek length stayed at 34.5 hours, for the sixth straight month.

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