MONEY Jobs

Unemployment Rate Falls to 5.9% on Strong Job Growth

The unemployment rate is the lowest since 2008.

The economy added 248,000 jobs in September, the Bureau of Labor Statistics reports, beating analyst expectations and improving significantly over August’s disappointing numbers. The bureau’s last monthly release showed the U.S. only adding 142,000 jobs, the fewest in eight months. Friday’s data could help quell any fears of a worsening employment climate.

Today’s nonfarm payroll report also showed the unemployment rate falling to 5.9%, down from 6.1% in August and the lowest since July of 2008. The labor force participation rate — the percentage of the workforce that is either employed or actively looking for work — remained mostly static at 62.7% as older Americans continue to drop out of the work force. The unemployment rate has dropped by 0.7% in 2014, but still remains about 1.5 percentage points higher than its pre-crisis lows.

 

Despite an increase in hiring, average hourly earnings did not budge. Wages growth was static in September, and hourly wages have increased just 2% over the year.

Economists and investors have been closely watching monthly jobs numbers, partly to glean insight into when the Federal Reserve will begin to raise interest rates. Fed chair Janet Yellen has made employment growth a key factor in determining monetary policy, and repeatedly cited labor market slack as a reason for keeping rates at historic lows. However, as MONEY’s Taylor Tepper notes, Yellen is unlikely to raise interest rates in the near future due to inconsistent employment numbers and concerns over a shaky global economy, particularly in Europe.

MONEY’s Pat Regnier points out that while consumer spending has largely recovered since the housing crash, construction and government spending has not. Until public spending begins to return to pre-recession levels, job growth may continue to be especially sluggish. September showed little increase in government spending.

MONEY Jobs report

How the Fed Will React to Today’s Surprising Jobs News

140905_INV_JobsReport3
altrendo images—Getty Images

The fact that employers created fewer jobs than expected in August only emboldens the Federal Reserve to keep rates low for the time being.

The Fed is unlikely to raise interest rates this year — and not just because of Friday’s disappointing jobs report.

Though the economy fell short of adding 200,000 jobs in August — as it had in the six prior months — the unemployment rate remains at a better-than-expected 6.1%. Consumer confidence, meanwhile, rose in August and the economy grew by a robust 4.2% last quarter.

Many have long-waited for the time when the economy picks up and the Federal Reserve raises interest rates along with it. Even the presidents of the St. Louis and Philadelphia Federal Banks recently said the nation’s central bank should raise interest rates sooner than expected thanks to job gains and slightly rising inflation.

But given muted inflation and the growing concerns in Europe — where the economy threatens to slip back into recession and central bankers are still slashing rates in a desperate attempt to jumpstart business activity in the region — Fed chair Janet Yellen was unlikely to act soon. And today’s Labor Department report, showing that only a modest 142,000 jobs were created in August, only reinforces this.

Jobs

The unemployment rate has already dropped more than half a percentage point this year.

US Unemployment Rate Chart

US Unemployment Rate data by YCharts

But that’s just one way to look at the labor market. Another is the labor force participation rate. Since younger Americans tend to go school, and Baby Boomers are beginning to retire en masse, you can look at the participation rate for workers between the ages of 25 to 54. Before the recession almost 80% of those Americans were working or looking for a job. Now, 77% are. To put that into perspective, 81% of prime aged workers in France participate in the labor force.

Another, more inclusive, employment metric is the so-called U-6 rate of unemployment — which includes unemployed workers, Americans who want to work but have stopped looking for a job, and part-time workers who’d rather put in full-time hours. The U-6 rate has dropped from about 17% after the recession to 12% now, but that’s still close to four percentage points higher than before 2008.

u-6

Here’s Yellen from her Jackson Hole speech a couple of weeks ago:

At nearly 5% of the labor force, the number of such workers is notably larger, relative to the unemployment rate, than has been typical historically, providing another reason why the current level of the unemployment rate may understate the amount of remaining slack in the labor market.

Inflation

Despite predictions of increased inflation thanks to unorthodox monetary policy, deflation has been a bigger concern since the recession than inflation. Nevertheless, some central bank officials are still worried about an unexpected rise in prices thanks to an improving jobs situation and want to head off that potential rise with higher interest rates.

As Philadelphia Fed President Charles Plosser said on a Bloomberg Radio interview, “I would rather us get started raising rates sooner and raise them more gradually than put them off and have to raise them very quickly.”

The Congressional Budget Office disagrees. The non-partisan agency predicted that over the next 10 years inflation will only rise around 2% a year, in a recent report. “CBO anticipates that prices will rise at a modest pace over the next several years reflecting slack in the economy and widely held expectations for low and stable inflation.”

Right now core inflation, according to the Federal Reserve’s preferred measurement, grew by 1.5% in July over the previous 12 months. That’s well below the Fed’s target rate of 2%.

Europe

Depressed Americans need only look across the pond to see how badly our recovery could be going. The Euro zone area experienced no growth in the second three months of 2014. Combine that with ultra-low inflation and you have the recipe for economic stagnation. Even the vaunted German economy stalled.

This three-year experience of little economic traction follows the European Central Bank’s decision to raise interest rates in 2011 during the sovereign debt crisis in order to fight inflation. Quash it they did. Prices recently rose by an annual rate of only 0.3% in August in the 18-country Euro zone, prompting ECB President Mario Draghi (who wasn’t in charge back then) to drop interest rates to an all-time low of 0.05%.

Eventually American consumers will see raises and go off and spend that extra cash. Demand will not stay depressed forever, and the Fed will one day raise interest rates. That decision, though, is more likely to be later than sooner.

MONEY

Job Report Misses Expectations, Fewest Jobs Added in 8 Months

The U.S. economy added only 142,000 jobs in August, the slowest employment growth in 8 months.

The economy added 142,000 jobs in August, substantially missing analyst expectations, according to the latest data from the Bureau of Labor Statistics. Economists had predicted another month of high employment gains, with estimates predicting that 225,000 positions would be added. Instead, the August hiring missed that number by almost 40% and signalled the lowest employment growth in eight months. Unemployment remained virtually static at 6.1%.

The report also showed the number of long-term unemployed persons declined by 192,000 to 3 million in August. This group currently makes up about a third of the overall unemployed population, but has declined by 1.3 million over the past year. The labor force participation rate — the percentage of workforce that is either employed or actively looking for work — remained mostly unchanged at 62.8%.

Friday’s numbers were a surprise considering recent economic growth.

One important question is how the Federal Reserve will interpret the report. As MONEY’s Taylor Tepper reports, Fed chair Janet Yellen has made stronger employment growth a core part of her monetary policy, and has signaled the Fed will raise interest rates only when slack in the labor market decreases. Slow job growth may convince the central bank to hold back on rate increases even longer and wait for further employment gains.

MONEY Economy

WATCH: Job Growth Continues, But Unemployment Rises Too

The economy has added at least 200,000 jobs per month for six straight months, the longest such streak since 1997.

MONEY stocks

Goldilocks Jobs Report Calms Down Wall Street’s Bears—For Now

The three bears discover goldilocks asleep in their bed they are not amused...
Chronicle—Alamy

While job growth was tepid in July, this was exactly what the markets needed to reverse Thursday's 317-point decline, as pressure on the Federal Reserve to raise rates subsides.

At first blush, today’s jobs report sure felt underwhelming. The Labor Department said that the economy created 209,000 new jobs in July, not the 233,000 that were expected.

Yet what seemed like disappointing results turned out to be exactly what Wall Street needed.

On the one hand, the economy still managed to produce more than 200,000 jobs in July, which marked the sixth consecutive month in which job creation topped that level. That hasn’t been seen since the late 1990s. “July’s payrolls report helps to confirm the sustainability of the strongest labor market expansion since 1997,” said Guy LeBas, chief fixed income strategist for Janney Montgomery Scott.

On the other hand, the labor market was just tepid enough to cool at least some of the hot debate about how the Federal Reserve needs to stop coddling an economy that’s starting to sizzle and hike rates soon.

Immediately after the jobs report was released Friday morning, investors took a deep breath and calmed down following Thursday’s 317-point drop in the Dow Jones Industrial Average.

Though it seemed as if the markets were headed for another triple-digit down day based on sentiment before the opening bell, the Dow and S&P 500 were relatively flat in early morning trading. By around 11:30 am, the Dow had fallen by around 50 points, but that was pretty much all the bulls could hope for:

^DJI Chart

^DJI data by YCharts

The real question is how long will the bears be kept at bay? A week from now, the government is set to release another batch of data detailing worker productivity and labor costs. And if there’s any whiff of inflation in those figures, the bears are likely to awake once more.

MONEY

Report: U.S. Adds 209,000 Jobs in July, Unemployment Rate Remains Steady

The U.S. added 209,000 jobs in July, but the unemployment rate remains steady

The U.S. economy added 209,000 new jobs in July, according to the latest employment report from the Bureau of Labor Statistics. The number is slightly lower than the 233,000 jobs some analysts expected. Despite the increase, unemployment ticked up slightly to 6.2%.

The report also showed that the labor force participation rate—the percentage of the working-age population either employed or looking for a job—moving up only slightly to 62.9%, virtually unchanged since April. The number of long-term unemployed, who make up 32.9% of the total unemployed population, also changed little, moving from 3.1 million to 3.2 million.

The BLS revised upwards its May and June employment growth figures, reporting 15,000 more jobs were added in those months than previously reported.

Job growth is always a closely-watched indicator of economic performance, but investors will be paying especially close attention to today’s numbers and what they might mean for interest rates. The Federal Reserve has shown increased confidence in the economy, and recently began phasing out its bond buying program known as quantitative easing.

While Federal Reserve Chair Janet Yellen announced on Thursday that the Fed still had no plans to increase interest rates, citing concerns with the housing market’s slow recovery, many economists believe that strong GDP growth in the last quarter combined with persistent job growth may soon force the central bank’s hand as it seeks to keep inflation from creeping over 2%. The beginnings of a return to pre-recession interest rates would be good sign for the economy as a whole, but some investors may stand to lose money if interests rates rise earlier than expected.

MONEY

One Reason Today’s Jobs News Isn’t Great for Your Money

Crowd of commuters walking in midtown New York
Mitchell Funk—Getty Images

Great jobs numbers have stock investors cheering. But what about bonds?

We’re heading into the 4th of July weekend with reasons to be cheerful. The jobs report from the Bureau of Labor Statistics came in surprisingly strong. Unemployment is down to 6.1%, the lowest level since before the financial crisis. And employers reported adding 288,000 new jobs, considerably more than the roughly 212,000 economists had forecasted, according to a Reuters survey.

At the same time, the stock market continued it’s rally. After the report the Dow climbed past 17,000 for the first time. So the story here — more jobs, stronger economy, good news for investors — is clear, right?

Well, actually, that’s if you care only about the stock market. The bond market had a different reaction this morning: Yields on Treasuries ticked up, which means that their prices fell. And while most of us consider bonds the ho-hum, steady part of our portfolios, they stand to take a big hit if employment continues to come back more quickly than expected.

The reason? In the upside-down world on bond investing, a really strong and sustained recovery means the Fed is more likely to raise interest rates — and rising interest rates cause bonds to fall in value. In this case, the potential slide could be worse because bonds gained in value this year as investors bet that the status quo of low interest rates would hold.

Of course, the jobs report wasn’t perfect. There are still plenty of signs of economic slack. Wage growth is still slow. And then there’s this:

fredgraph

Remember, the unemployment rate only captures people who say they are still looking for work. The graph above shows that the number people either working or trying to work is historically low. That partly reflects demographic changes, but also a large number of people so discouraged in their job searches they’ve stopped looking. Numbers like these are one reason Janet Yellen and the Fed may continue to hold rates low despite the better numbers.

Still, after a long period of low rates and strong returns for bonds, people who run mutual funds are worried that many investors are unprepared for rising interest rates. Speaking yesterday, before the jobs numbers came out, T. Rowe Price chief economist Alan Levenson noted that the risk of losses on long-maturity bonds is unusually high. “I don’t know that retail investors are aware, as they’ve ridden this bond market down to lower yields, that the duration of their assets and vulnerability to capital losses is extraordinary by historical standards,” he said.

How big a loss are we talking about? An exchange-traded fund owning long-maturity bonds has a “duration” of about 14 years, which roughly translates to a 14% capital loss should rates rise a full percentage point. A more typical fund used as a core bond holding, the Vanguard Total Bond Market Fund, has a duration of 5.6, so would face roughly a 5.6% decline in a one-point rate spike.

This doesn’t mean investors should be running away from bonds. Rates could stay low for a long time. And compared to stocks, bonds are still likely to be less volatile, especially in the lower-duration bonds you might have in a short- or intermediate-term bond fund. But today’s happy job news is reminder that the era of strong bond returns is likely coming to a close.

TIME Economy

Unemployment Rate Dips to Lowest Level Since 2008

June job growth beats expectations

The U.S. economy added almost 288,000 new jobs in June, according to new government data Thursday, handily beating analysts’ expectations and sending the unemployment rate to its lowest level since September of 2008.

The pace of job creation well outpaced projects that the economy would add 215,000 jobs. The unemployment rate dipped from 6.3% to 6.1%, its lowest level since the month Lehman Brothers collapsed and the U.S. economy went into a tailspin.

Stock markets jumped on the news, with the Dow Jones Industrial Average surpassing 17,000 points for the first time ever.

The data from the Bureau of Labor Statistics signaled that the economy was healthily bouncing back from a biting cold winter that hampered growth, and relieved economy watchers who had been alarmed by an economic contraction in the first quarter. The numbers will also sure come as a relief to Democrats who have been fearful that a still-sluggish economy will hurt them against Republicans in the midterm elections. June marked the fifth consecutive month of job gains exceeding 200,000, the best clip since the tech boom of the late 1990s, the Associated Press reports.

Job growth figures for May were also revised upward. BLS described the job gains as “widespread,” powered by growth in “business services, retail trade, food services and drinking places, and health care.”

Signs that the economic recovery remains tepid still persist. While the longterm unemployed, defined as those jobless for 27 weeks or more, dropped by 293,000, 3.1 million Americans remains in that category.

But with exports hitting a record high and imports falling, the trade deficit fell 5.6%, to $44.4 billion.

TIME Morning Must Reads

Morning Must Reads: July 3

Capitol
The early morning sun rises behind the US Capitol Building in Washington, DC. Mark Wilson—Getty Images

In the news: Clashes between Palestinian protesters and Israeli security forces; ISIS; Obama's Syria strategy; Obama's religion problem; U.S. jobs report; Hurricane Arthur

  • “The abduction and suspected revenge killing of an Arab youth sparked intense clashes between Palestinian protesters and Israeli security forces in East Jerusalem on Wednesday, raising the specter of wider violence two days after three kidnapped Israeli teenagers were found dead in the occupied West Bank.” [WashPost]
    • “…Prime Minister Benjamin Netanyahu and his allies on Israel’s political right appear to have extracted what they wanted from the crisis. And that has been disastrous for Palestinian civilians, who are suffering what, by every indication, appears to be collective punishment by the Israeli government for the actions of a few rogue militants.” [Vox]
  • How ISIS Came to Control Large Portions of Syria and Iraq [NYT]
  • “There’s a battle raging inside the Obama administration about whether the United States ought to push away from its goal of toppling Syrian dictator Bashar al-Assad and into a de facto alliance with the Damascus regime to fight ISIS and other Sunni extremists in the region.” [Daily Beast]
  • Secretive agency leads most intense anti-corruption effort in modern Chinese history [WashPost]
  • “Relations between the CIA and Congress are more fraught than at any point in the past decade. The source of the tension is the Senate intelligence committee’s classified report on the CIA’s controversial post-9/11 interrogation program—and the agency’s response to it. The bad blood could get worse in coming weeks, when portions of the report and CIA response are expected to be declassified.” [WSJ]
  • With Change Proving Difficult, Barack Obama Returns to Hope [TIME]
    • “That Obama has grown frustrated by Congress is nothing new, but the fact that he is wearing it on his sleeve is.”
  • “The unemployment rate, at 6.1%, is at its lowest since September 2008, the month of the Lehman collapse. However, the labor force participation rate is still at 62.8%—also the lowest ever.” [Reuters]
  • “This week, in the Hobby Lobby case, the Supreme Court ruled that a religious employer could not be required to provide employees with certain types of contraception. That decision is beginning to reverberate: A group of faith leaders is urging the Obama administration to include a religious exemption in a forthcoming LGBT anti-discrimination action.” [Atlantic]
  • “Thousands of Facebook users received an unsettling message two years ago: They were being locked out of the social network because Facebook believed they were robots or using fake names. To get back in, the users had to prove they were real. In fact, Facebook knew most of the users were legitimate.” [WSJ]
  • “Tropical Storm Arthur became a hurricane early Thursday morning and continues to accumulate strength as it approaches the North Carolina coast.” [TIME]
MONEY The Economy

WATCH: Jobs Gain in May, But Unemployment Holds at 6.3%

The Department of Labor's May jobs report shows continued employment growth. But millions more jobs are needed to get the workforce back to pre-recession levels.

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