Tepid U.S. Job Growth Could Delay Fed Tapering Plans

Unemployment drops, new jobs miss estimate

FBN’s Peter Barnes and Joanie Ruge of Monster Worldwide break down the September jobs

After a delay of more than two weeks caused by the budget impasse in Congress, the Labor Department said Tuesday the U.S. economy added just 148,000 jobs in September, an amount unlikely to persuade the Federal Reserve to begin scaling back its easy-money policies any time soon.

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The headline unemployment rate fell to 7.2% -- the lowest since November 2008. Economists had predicted the addition of 180,000 new jobs last month and that the rate would hold steady at 7.3%. However, labor force participation rate -- a closely-watched measure of the proportion of the population employed or seeking employment -- held steady at 63.2%.

"The bottom line for today’s report is 'more of the same,'" Dan Greenhaus, chief global strategist at BTIG, a market maker, wrote in an email to clients. "Wage growth is weak, job creation is relatively weak and, perhaps most worrisome, appears to be slowing."

Average hourly earnings rose 3 cents to $24.09, and are up just 2.1% so far for the year, highlighting the relatively stagnant earnings growth among American workers. The average workweek, meanwhile, held steady at 34.5 hours.

'Sub-Par Job Growth' Could Delay Taper Until March 

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The tepid data have caused Wall Street analysts to push back the date at which they expect the Federal Reserve to begin paring back its massive bond-buying program. Indeed, Barclays chief U.S. economist Dean Maki said he now expects to the central bank to begin tapering QE3 in March.

"While we believe these figures are strong enough to keep the unemployment rate on a downward trend, in September (Fed) Chairman Bernanke downplayed the falling unemployment rate and focused instead on what the Fed views as subpar job growth," Maki wrote to clients on the heels of the report.

"Given this trend in job growth, the uncertainty created by the government shutdown, and the impending change in Fed leadership, we now expect the FOMC to wait at least until March to begin the tapering process."

Fed officials have said for months the central bank will maintain its stimulus programs until labor markets show sustained improvement. But that hasn’t happened.

The disarray that pervaded Washington, D.C. earlier this month only added to employers’ uncertainty regarding U.S. fiscal policy. That combined with unanswered questions related to health-care reform laws that take effect in 2014 have pushed employers toward hiring more part-time workers, a situation that saps the strength of the broader economy.

"The shutdown has caused an additional headache for an already puzzled sounding Fed, which has sent confusing messages to the markets about when it will start tapering its asset purchase program," said Chris Williamson, chief economist at U.K.-based market-data firm Markit.

"The Fed was already keen to await more data on the health of the economy before its makes any decisions on policy, but now also needs to gauge the impact the shutdown itself has had on the economy."

Williamson, echoing Maki, sees the Fed starting to pare back its asset-buying program next year, "possibly as late as March."

The unemployment rate has come down from 10% in October 2009 at the height of the financial crisis, but the jobs data released since then have been mixed. In recent months, whenever the unemployment rate has ticked lower, a primary reason for the reduction has been that thousands of Americans leaving the workforce out of frustration they can’t find a job.

The Fed’s two central monetary strategies – the bond purchases known as quantitative easing and holding interest rates near zero – are intended to spur borrowing and serve as a catalyst for economic activity and growth.

Housing data released on Monday could serve as additional fodder for Fed members reluctant to ease off the stimulus gas pedal. The National Association of Realtors said sales of existing homes fell by 1.9% in September and revised its August sales numbers sharply lower.

The lower numbers suggest  rising mortgage rates, pushed higher because bond markets believed the Fed was going to start scaling back on stimulus last month, are giving potential home-buyers second thoughts, a situation that could serve as a roadblock to the broader housing recovery.

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