The shocking news came in the form of the unemployment rate for August, which soared to 6.1% from 5.7% in July. This unemployment level is the highest in nearly five years and is beyond what policy makers had forecast in July. In their regular report to Congress then, the central bank’s official expectation for the unemployment rate had it ranging between 5.5% and 5.7% this year, and between 5.3% and 5.8% next year.
The rate has steadily climbed this year from a cycle low of 4.4% and now sits just below the peak of 6.3% seen during the last recession. The job less-rate jump reflected how energy prices and problems in the housing and financial sectors have radiated outward to slow overall economic activity.
Nonfarm payrolls decreased by 84,000, after revised net declines of 60,000 in July and 100,000 in June, the Labor Department reported. This marked the eight straight monthly drop in payrolls. That brought net job losses so far in 2008 to more than 600,000.
The factory sector, especially the auto industry, shed jobs in August. Factory payroll losses accelerated, dropping by 61,000, their eighth straight monthly decline, while construction jobs fell by 8,000 in August. Both of these sectors haven't experienced job gains in more than a year. Employment services, considered a bellwether of future labor-market trends, also had sharp losses. Temporary-help jobs fell by 37,000. Only government and education and health care added workers.
The weak labor market is sure to rekindle fears of an incipient recession among investors and consumers alike. Economists have been warning that the economy appeared to be stalling, but Wall Street was dazzled late last month by the strong 3.3% growth reported in the government's first revision of its estimate for gross domestic product during the April-June quarter.
The weak report should postpone any Fed rate hike. Although some Fed officials have been agitating for a tightening sooner rather than later, most analysts believe it will be difficult for the Fed to justify raising rates in face of labor market weakness.
The primary test for policy makers as time moves forward is how much weakness they’ll be willing to tolerate before deciding to act. Key in all of this will be the inflation outlook. Most policy makers expect already uncomfortable price measures to worsen a bit more, and then move toward more favorable levels as the decline in oil prices and slower growth leave their mark.
Lower inflation gives the Fed the latitude to cut rates. But it remains unclear how weak the economy would have to get before officials decide monetary policy needs to offer more support to the economy, in the form of lower rates.
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2 comments:
greatcreation: The weak report should postpone any Fed rate hike.
The job less-rate jump reflected how energy prices and problems in the housing and financial sectors have radiated outward to slow overall economic activity Unrealty
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