1134 GMT November 28, 2020
The report, which showed that the US economy created 142,000 jobs in September, fell short of the 201,000 gains economists had forecast and was more than two-fifths below the trailing 12-month average, according to the Department of Labor.
In a further blow, August’s jobs tally was revised from 173,000 to 136,000 and wage growth flatlined. The unemployment rate was unchanged at 5.1 percent, FT wrote.
The figures damped expectations that the Fed would lift interest rates this year, despite persistent commentary from policymakers that the central bank would like to get off the near-zero mark for the first time since the financial crisis.
“This takes October completely off the table and obviously it makes December questionable as well,” Michael Feroli, an economist with JPMorgan, said. “We’ve already taken down third-quarter GDP forecasts, but it raises some questions about the fourth quarter and whether growth momentum is weakening into year-end.”
Traders now expect the US central bank to wait to raise rates until March, a signal that weak global growth is winding its way to American shores.
Odds that the Fed will move by March slipped to 55 percent, the first month where the probability of tighter monetary policy eclipsed the 50:50 hurdle, according to Fed Fund futures prices calculated by Bloomberg.
With the unemployment rate having almost halved from the recessionary peak of 10 percent touched in October 2009, Fed officials have indicated their anxiety over the health of the jobs market has eased.
However, September’s figures may undercut that view. The larger impediment to the Fed lifting its key interest rate for the first time since 2006 remains the inflation outlook, which has been muddied by a crumbling in the oil price over the past year.
Janet Yellen, the central bank’s chair, has insisted that a sustained expansion in the labor market will ultimately buoy wage growth that has not strayed much above two percent since the economy emerged from its downturn.
But wage data released alongside the jobs figures offered little encouragement. Average hourly earnings were flat in September from August, leaving the annual rate at 2.2 percent.
“Addressing the issue of stubbornly low real wage growth is one of the largest pieces of business in this recovery,” Thomas Perez, secretary of the labor department, said. Perez added that the stronger dollar had created a headwind for US businesses dependent on exports.
Several reports have signaled that the US economy is losing momentum following financial market gyrations in late August and September. Surveys of manufacturers have indicated a downturn in orders and employment, while businesses have restrained orders for durable goods.
Employers in the manufacturing sector cut payrolls by 9,000 in September, while the mining industry shed 10,300 positions during the month, underlining the effect weak commodity prices has had on the labor force.
Investors raced into US Treasuries across the curve on Friday, sending yields on both short- and long-term dated government paper sharply lower.
The yield on the two-year Treasury, the most sensitive to interest rate moves by the Fed, slid 7 basis points to 0.58 percent, while the yield on the 10-year note dropped five basis points to 1.99 percent.
Equities initially slid after the report before recovering, with the S&P 500 and Dow Jones Industrial Average advancing 1.4 and 1.2 percent, respectively, by the close. The dollar slipped against the euro.
“You’re in a situation where things seem to be slowing down,” Steven Englander, a strategist with Citi, said. “It’s not as if you can say, ‘Don’t worry, they’ll cut interest rates by 100 basis points.’ They don’t have 100 basis points to cut.”