Federal Reserve wary over US jobs but will wait to study trend

The US job-creation engine has faltered. After a year-long streak of monthly gains exceeding 200,000, payroll growth dropped to 126,000 last month.

The market reacted accordingly, with the dollar slipping and bond prices rallying, as traders further pared back bets on a June interest rate increase.

But how significant a setback is this and will it alter Federal Reserve policy?

How weak were the numbers?

The problem was not just the March reading, but downward revisions to January and February figures that wiped a net 69,000 jobs from the books.

Some of this was predictable: the weakest sector was mining, where a net 11,000 jobs were lost amid the oil price plunge. The industry has lost 30,000 jobs this year, after adding 41,000 in 2014.

But industries that have seen robust figures recently also sputtered - employment in food services and drinking places, for example, was up just 9,000 in March after surging 66,000 in February.

So a serious setback?

That is a little premature. Payroll gains have been strongly outpacing growth in overall output. With some analysts predicting annualised growth in gross domestic product of about 1 per cent or less in the first quarter, a slowdown was probably overdue. One-off factors affected these figures, including bad weather, which dented construction headcounts.

While job losses in the energy sector are bad news for that industry, they reflect a cheapening of the oil price that should benefit US consumers.

Even after Friday's downward revisions, monthly payroll gains averaged 197,000 in the first quarter of 2015. And the overall hiring pipeline remains strong, with job openings at almost 5m in January, while claims for jobless benefits remain low.

What about wages?

There was better news here, with average hourly earnings for all employees rising by 7 cents to $24.86. That lifted the annual gain to 2.1 per cent.

With a series of large companies, including Walmart and McDonald's, announcing increases in their minimum wages, there could be further gains to come.

That said, the 2.1 per cent growth rate remains well below the gains of 3 to 3.5 per cent that some Fed officials regard as normal.

And the other indicators?

The participation rate slipped marginally as some people dropped out of the workforce, leaving it at 62.7 per cent, compared with 62.8 per cent in February.

In a positive sign, however, the number of longer-term unemployed fell by 146,000, leaving it at 2.56m. A broader measure of joblessness that includes people who are working part-time because they cannot find a full-time post fell to 10.9 per cent, from 11 per cent the previous month, putting it at its lowest level since 2008.

So how will the Fed react?

The recent strong pace of gains could not be sustained indefinitely - especially given the soft indicators for the first quarter - and officials expected a slowdown. The central bank will also not fixate on one month's number. It is the trend that is important.

However, the weak first-quarter data have induced a more cautious tone to recent Fed communications. The question is whether the jobs market cools further, in line with other - weaker - indicators, or whether this proves to be a blip.

Another two payroll reports will be published before the Fed's critical meeting in June, which is the earliest date it has opened up for a possible rate increase.

© The Financial Times Limited 2015. All rights reserved.
FT and Financial Times are trademarks of the Financial Times Ltd.
Not to be redistributed, copied or modified in any way.
Euro2day.gr is solely responsible for providing this translation and the Financial Times Limited does not accept any liability for the accuracy or quality of the translation