Data released by the US Department of Labor suggest that the US economy created some 173000 new jobs in the month of August. This figure is weaker than analysts had been anticipating. Coupled with the market turmoil caused by current unease over the slowing of the Chinese economy and the ripple effect that it has had on US stock markets, it probably makes it less likely that the much anticipated increase in the US Federal Reserve interest rate will not be announced at the September meeting of the Fed. This would please the IMF which has argued that a US interest rate hike could slow the global economy. The brief of the Federal Reserve is to maintain stable prices and adopt policies designed to ensure high levels of US employment, so the concerns of the IMF alone may not hold much sway with the Fed.
The unemployment level eased by 0.2% in August to stand at 5.1% which is certainly within the window where the Fed might start the long process of normalising interest rates, but then again they may delay further. Analysts had expected the US economy to add 217000 jobs in August, so the actual number was well below this projection. The unemployment rate is now at its lowest level since April 2008 which marked the turn of the tide in the Global Financial Crisis as the economy contracted and jobs started to be lost in earnest (employment is a lagging indicator of the economic cycle).
The figures contributed to major markets closing lower in many regions. The fact that August figures are often revised upwards when fuller data becomes available and that the economy created 44000 more jobs than believed in June and July did nothing to lighten the mood. Given that the labour participation rate could stand improvement and that a sizeable proportion of the workforce wants to work more hours, the most likely scenario is that the Federal Reserve will leave rates on hold when they meet over the 16th and 17th of September. Inflation in the US economy is not a concern at the moment, so other than the desire to move towards a more traditional interest rate value, there would seem to be little pressure on the Fed to act sooner rather than later – a situation we have been in for twelve months or so since its quantitative easing programme was ended in The Taper.