U.S. jobs report shows a bright recovery in labour market
- U.S. employment data showing strong job gains, a sharp drop in unemployment rate and a rise in wages last month is likely to push the Federal Reserve closer to paring its massive support for the economy.
Earlier this week, the newest addition to the Fed policymaker panel said he felt the Fed could start demonetizing its $120 billion in monthly asset purchases by October if 800,000 to 1 million jobs were added in both July and August.
The U.S. Labor Department reported that nonfarm payrolls rose by 943,000 jobs in the last month, beating the forecast of economists in a Reuters poll. Job gains for June and May were revised further also. The unemployment rate also fell to 5.4%, while wages rose at a solid pace.
U.S. employers added an average of about 832,000 jobs each month for the past three months; after Friday's report, this three-month average was about 567,000.
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Other Fed officials, including Vice Chairman Richard Clarida, also said this week they could envision a decrease in the central bank's purchases of Treasuries and mortgage-backed securities if the job gains accelerated, although none set such a bright line as Waller.
Today's bumper payrolls report highlights a brighter recovery in the labour market and increases the chances of the Fed foraging their asset purchases sooner rather than later, said Mike Bell, global market strategist at JP Morgan Asset Management.
The better-than-expected labor market report card won't put an end to the debate among Fed policymakers about the exact timing or pace of a reduction in asset purchases or of the eventual interest rate hikes that some feel should start next year but others not until 2023 or even later.
That's in large part because the bar the Fed has never been precisely defined for its bond buy program - significant further advancement toward the Fed's inflation and full employment goals - reduced.
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It's fairly clear the benchmark has been met on the inflation front, where a surge in post-pandemic spending and bottlenecks in supply chains have helped push the rate of price increases at least temporarily well above that goal.
Most economists agree that full employment is achieved with respect to capital projects.
A still-large 5.7 million jobs hole compared to pre-pandemic level, a surprising drop in Black workforce participation, and the threat that some say the latest surge in coronavirus cases poses new job gains all may raise questions for some.
The progress will likely still not be viewed as sufficient to taper and we don't expect the data for August to be as strong as the data for July, TD Securities economists wrote in a note earlier this week in which they forecast a million jobs would be added last month.
Fed Governor Lael Brainard said last week that she would be more confident about labor market progress once she has September data in hand, because it won't be until then that reopened schools and the lapsing of pandemic unemployment benefits will propel more people back into the labor market. The first Fed policy meeting after the September jobs report is held in November.
San Francisco Fed President Robert Kaplan said for her part that she could support tapering of bond purchases later this year or early in 2022, a later time frame than Waller and a few other policymakers like Dallas Fed President Mary Daly, who wants the taper to come soon.
Particularly telling are the trends for people aged 25 to 54, the so-called prime-age worker bracket in Daly. Their employment-to-population ratio — a measure of their probability to work — rose sharply in July to 77.8%, up from 76.3%. He is still well clear of the 80%+ range it had reached before the pandemic.