US jobs disappointment cuts chances of Fed easing stimulus

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The US economy created fewer jobs than forecast in August, dampening expectations that the Federal Reserve will start weaning the US economy off its stimulus programme this month.

The weakness in the US labour market was underscored by a fresh fall in the participation rate, which tracks the number of Americans in work and those who are unemployed but looking for work.

According to US labour department, the figure declined to 63.2 per cent, the lowest since 1978, taking the unemployment rate in the world’s largest economy from 7.4 per cent to 7.3 per cent, the lowest since the end of 2008. Overall, 169,000 new jobs were created in August, against expectations of 175,000 to 180,000. For July, the labour department revised its estimate of the number of new jobs to 105,000 from 162,000. The figure for June dropped to 172,000 from 188,000.

The figures present a dilemma for the Federal Reserve, which was widely expected to announce a reduction in the extraordinary stimulus measures that have been supporting the US since the financial crisis after its next meeting later this month.

In particular, the Fed was expected announce a cut – or taper – in its programme of buying up $85bn (£55bn) of mortgage – and government-related bonds every month. In the summer, against the backdrop of improving economic indicators, the Fed’s chairman, Ben Bernanke, outlined the timetable the central bank might follow: a reduction in the scope of the programme around the end of this year and wind down the bond-buying programme around the middle of next year.

A key driver of the Fed’s and the market’s optimism about the US economy has been the unemployment picture. As the figures improved, most economists began forecasting the first reduction in the stimulus this month.

But the August jobs report, and what it says about the underlying weakness in the labour market, will complicate matters for the Fed’s policymakers, who must also factor in the potentially destabilising effects of a US strike on Syria. The mere suggestion that the Fed might reduce the scope of its programme has already triggered widespread volatility on international stock and currency markets, as investors eyed the beginning of the end of an era in which the central bank has ensured a steady supply of cheap money.

Wayne Kaufman, the chief market strategist at Rockwell Securities in New York, said the revisions in the August report were “a little shocking”. The figures, he told Reuters, increased the “odds of the Fed holding steady”.

Others disagreed. “The market is taking this morning’s somewhat disappointing data as suggesting that the Fed will not taper in September,” Mohamed el-Erian, the head of bond investor Pimco, said. “I am not so sure that is the case.”

Adult movie shutdown hits economic data

Part of the weakness in the August jobs figures stemmed from weaker employment trends in the movie business, with the industry shedding 22,000 jobs.

While the figures did not explain the precise reason for the losses, The Washington Post suggested the weakness might be down to the temporary shutdown of the US adult film business in August. Studios stopped filming after an actress tested positive for HIV.