Jobs Report Seen As Pushing Fed to Hike Rate This Month: Economists

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By Martha C. White

While the U.S. economy added fewer jobs than expected in August, Friday’s employment report will likely prompt the Federal Reserve to raise interest rates at its meeting later this month, a spot survey of economists by NBC News shows.

“I think today’s report gives Fed policymakers the reassurance they were looking for,” said Andrew Chamberlain, chief economist at Glassdoor. “The recent stock market volatility and the cracks in the Chinese economy have not yet shown up in the labor market.”

Peter Cardillo, chief market economist at Rockwell Global Capital, agreed, noting that data showing wages finally beginning to creep up would be an important factor in the Fed’s decision.

“I think there’s enough evidence in this report that should mean a change in monetary policy,” he said. “There’s wage pressure, and that’s a key for the Fed, and the weekly average work week went up.”

Although the 173,000 jobs added in August was lower than the 220,000 jobs that economists were expecting, the overall 5.1 percent unemployment rate in the report – the lowest in seven years – will be hard for the Fed to ignore when it meets on Sept. 16-17 to consider raising the interest rate, said Wayne Kaufman, chief market analyst for Phoenix Financial Services.

Unemployment at 7-Year Low After Economy Adds 173k Jobs in August

“When you’ve got the unemployment rate down to 5.1 percent, it’ll be very hard for the Fed to justify not getting off of zero, not making some type of a move,” he said. “I think it really increases the odds of them raising it, and I’d like to see them do it and get it off the table.”

Other analysts noted that the Labor Department had subsequently revised both the June and July numbers higher to the tune of 44,000 additional jobs, and said the August figure also might ultimately be revised upward as well.

“It’s worth noting that the first print on August payrolls has surprised to the low side in the past four years. Subsequent revisions have been large and positive,” Jay Feldman, director of economics research at Credit Suisse, said via email.

Raymond James chief economist Scott Brown noted that the August report did contain a few cautionary notes. Mining and manufacturing jobs both fell for the month, indicating that a stronger U.S. dollar is having some repercussions on demand for American exports.

But Brown said this isn’t necessarily a red flag for the overall economy.

“You can have the manufacturing sector in a mild recession without having a recession in the overall economy,” he said.

Dow Drops Triple Digits After Opaque Jobs Report

Brown compared the past month’s market gyrations — spurred by unease about China’s slowing economy as well as anticipation of an increased interest rate in the near future — to the sell-off that took place two years ago when the Federal Reserve wound down its bond-buying quantitative easing program.

“It seems a bit odd to me,” he said of Friday’s broad-based drop across the major indexes in response to the report. “This is really a sign that we’ve made substantial progress.”

Cardillo suggested that the stock sell-off is likely temporary. “Looks like it’s going to be a negative session, but (it’s) looking as if the averages may be able to hold support levels,” he said.

Brown said market volatility remains an X factor, though. “I think it’s still on the table for September,” he said, but placed the odds at only 20 to 30 percent. “If things really start to calm down a lot more, I think they’d be more inclined to raise rates.”