August’s Employment Research Notes

by Jim Baird on September 10, 2012

Job creation disappoints, raising expectations for Fed easing

Job creation in August was well below expectations, as the economy added just 96,000 new jobs. The Bureau of Labor Statistics also lowered its estimate of job creation in recent month, painting a picture that is less optimistic than previously believed.  The unemployment rate ticked down modestly to 8.1% for the month, an anomalous result driven not by a surge in job creation, but as a result of a sharp cut in the estimated size of the labor force.

Recent indications of labor market conditions had been better than expected, rendering today’s report a disappointment.  The decline in initial jobless claims last week was the largest since mid-July, while the August increase in private nonfarm employment of 201,000 reported by ADP was the best in five months.  All were better-than-expected, providing an optimistic boost that the softening may be turning. 

Whatever sense of optimism had been generated by those comparatively positive sign may not be completely dashed by this report, but it certainly puts a damper on that mood.  Fed Chairman Ben Bernanke’s speech at the Annual Fed Symposium in Jackson Hole cited “grave concern” surrounding the persistently high unemployment and the long-term term unemployed.  In recent months, the Fed appears to have been closely weighing whether or not to take additional steps to provide additional stimulus, but has seemingly been lacking consensus within the committee on whether or not such steps are warranted at this point.  Today’s disappointing report certainly increased the odds that the Fed will take action when it meets next week.

Economic data is still mixed, consistent with an economy that still appears to be slowly expanding, but remains at risk of stalling further.   Overall, the economy remains in a window of vulnerability.  Capital markets are betting on central banks, including the Fed, taking steps to ease further in an effort to stimulate global growth.  Whether or not policymakers deliver on those expectations remains to be seen, but those policy decisions will likely have a meaningful impact on investor sentiment and market volatility in the near-term.

To see news coverage featuring Jim’s comments, please visit the following sites:

In Disappointment, U.S. Added 96,000 Jobs in August; Unemployment to 8.1% (Barron’s)

Stocks end the week with strong gains (CNN Money)


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