Weak job data may weigh on Fed’s decision on stimulus

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Job applicants waited to meet with recruiters during the Job Hunters Boot Camp in San Mateo, Calif., last week.

Job applicants waited to meet with recruiters during the Job Hunters Boot Camp in San Mateo, Calif., last week.

American employers added 148,000 jobs in September, a discouraging report that may still be too optimistic about the job market.

The report from the Labor Department is based on data collected before the recent government shutdown even started, so it doesn’t factor in the resulting furloughs. Adding to the uncertainty, the coming data releases will be delayed and distorted by the temporary shutdown, making it difficult to get an accurate picture of the underlying health of the economy.

Weakness in the September hiring figures — coupled with the complications about the upcoming releases — is expected to further delay the Federal Reserve’s decision to start tapering its stimulus programs.

“The labor market lost, rather than gained, momentum over the summer, leaving us with less than a desirable cushion just as the government was shuttered in response to political shenanigans,” said Diane Swonk, chief economist at Mesirow Financial.

While the Fed has been trying to stimulate the economy, fiscal policy has largely worked in the opposite direction, with multiple drags on growth resulting from a payroll tax hike that began in January, the across-the-board budget cuts of the so-called sequestration that began in March, and then the partial government shutdown and debt ceiling crisis in October. Even before the shutdown, the federal government had the lowest number of civilian employees on its payrolls since 1966, according to the September jobs report.

The pace of employment growth in September was slower than the average rate over the previous year, which was 185,000 jobs per month. The unemployment rate ticked down to 7.2 from 7.3 percent the previous month, a change that was not statistically significant, though the unemployment rate has fallen by 0.4 percentage point since June.

Other datapoints were lackluster, with the length of the average workweek and the share of Americans actively engaged in the labor force both remaining flat. Before August, the share of Americans in the labor force had not been this low since 1978, when women were less likely to be working. Economists have been expecting that this so-called labor force participation rate would pick up as workers waiting on the sidelines saw improvements in the job market and started applying for jobs again, but that has not yet happened.

The biggest net hiring gains in September were in construction, wholesale trade, and transportation and warehousing.

Economists have been fixating on the weaker parts of the report, which could delay when the Fed starts scaling back its major asset purchases, known as quantitative easing, because that action has been predicated on a steadily improving economy. The Fed was first expected to start tapering in September, and then when it didn’t, Wall Street analysts were placing bets on December. Now, they are pushing back their estimates again.

“In light of the moderate tone of the September employment report, we have pushed out our expectation for the first Fed tapering in the pace of asset purchases to March 2014 from December 2013,” economists at Barclays wrote in a note to clients.

It will be months before economists get a snapshot of the jobs market that is untainted by the recent fiscal crisis.

The September jobs numbers were supposed to be released two and a half weeks ago — the employment report usually comes out the first Friday of each month — but were delayed by the government shutdown that began Oct. 1. The 16-day shutdown and concurrent Congressional battle over the debt ceiling probably worsened employment in the weeks since the September jobs data were collected, both because hundreds of thousands of federal workers and contractors were furloughed and also because anxiety and uncertainty over the budget battle caused consumer confidence to plummet. Economists are hopeful that any dip will be temporary.

If the weak September job growth and October furloughs do not convince Fed policy makers to delay tapering, complications with incoming economic data caused by the shutdown still might.

“The Fed’s core criteria to change policy is clear evidence of a sustained improvement in the labor market outlook,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote in a note to clients. “Such evidence will not be available this year” because the shutdown depressed employment in October and then probably caused a corresponding bounce back in November.

The next “clean” report — that is, a jobs snapshot not affected by the whiplash of a federal government shutdown and reopening – will not come until January 2014, when hiring data for December will be released. As a result, Mr. Shepherdson predicted, this data disruption will force the Federal Reserve to hold off any reduction in its stimulus efforts till next year.

By that time Janet L. Yellen, the president’s pick to succeed Ben S. Bernanke, the Federal Reserve chairman, when his term ends on Jan. 31, may be at the head of the central bank. She is widely expected to continue the policies set in place by Mr. Bernanke.

Some economists say that a taper in December is still “on the table.” There were, after all, a few bright spots in the September report, including a decline in the unemployment rate among teenagers.

“When they chose not to taper in September, it was still the case that most participants thought it would start by the end of the year,” said John Ryding, chief economist at RDQ Economics. “Does this jobs number necessarily push that back? I think there’s still a vigorous debate to be had. It’s not a foregone conclusion.”

As with the September jobs report release, the Labor Department’s snapshot of the October job market will also be delayed by a week — now coming out Nov. 8, rather than the previously scheduled Nov. 1 — as a result of the government shutdown.

Some workers are still feeling the effects of the shutdown, though it officially ended last week.

“Workers like me, we were already living day to day and paycheck to paycheck,” said Luis Chiliquinga, 63, who earns $8.35 an hour at a McDonald’s inside the National Air and Space Museum in Washington. Because the museum was closed during the shutdown, the McDonald’s was too.

As a result of Mr. Chiliquinga’s temporary layoff, he could not pay his rent on time and was slapped with a $62 late fee. His boss told him McDonald’s would pay workers for any hours they were previously scheduled to work that got canceled because of the shutdown, but he has not yet received any of this promised back-pay. To make matters worse, after the museum reopened, his hours mysteriously disappeared from the posted schedule, and he still doesn’t have clarity about whether he will regain the hours he had previously been working.

“All this money I had to spend for travel and paperwork, to figure out what’s going on with my job, all that money wasn’t budgeted,” he said. “Neither was the lost wages. Of course this is going to have a long-lasting effect on myself and my family.”

Courtesy of The New York Times

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