Friday’s Jobs Report shows that talk of an early end to the Federal Reserve’s bond-buying programs might have been premature.
Fed officials have said they would continue buying long-term Treasury and mortgage bonds until the employment outlook improves substantially. One Fed official this week raised the possibility of a job market strong enough by summer to begin pulling back from the program. But the Labor Department Report released Friday could raise doubts inside the Fed About how quickly the job market is healing and deflate that hope.
There are many yellow flags in Friday’s report. The monthly gain in payroll employment, at 88,000 in March, was the smallest since June. Measures of hiring in earlier months were revised up and worker hours extended a bit – good news — but the soft March reading suggests that a start-and-stop pattern in hiring data persists. And hourly earnings were up just 1.8% from a year earlier, meaning little upward momentum in household purchasing power or inflation. That comes after other reports this week — such as soft readings from the Institute for Supply Management — suggested economic activity might have lost some momentum last month.
Meantime, the Labor Department’s household survey, which measures labor force trends, was weak beneath the surface. The jobless rate edged down to 7.6% in March from 7.7% in February, but for all of the wrong reasons — workers leaving the labor force rather than getting jobs. The labor force participation rate, at 63.3%, fell to its lowest level since 1979.
The Fed official this week who spoke About beginning to wind down the Fed’s bond-buying programs this summer was John Williams, president of the Federal Reserve Bank of San Francisco. But his speech on Wednesday included lots of caveats:
“The latest economic news has been encouraging. But it will take more solid evidence to convince me that it’s time to trim our asset purchases. An important rule in both forecasting and policymaking is not to overreact to what may turn out to be just a blip in the data. But, assuming my economic forecast holds true, I expect we will meet the test for substantial improvement in the outlook for the labor market by this summer. If that happens, we could start tapering our purchases then. If all goes as hoped, we could end the purchase program sometime late this year.”
Friday’s Report wasn’t the solid evidence of labor market improvement that Mr. Williams would have been looking for. Other Fed officials aren’t in any hurry. “Continued accommodative policy, such as continuing our asset purchase program through this year, is an appropriate response to labor market scarring,” [Dear Guest/Member you can't see link before click here to register], the Boston Fed president, said in a speech Friday morning, even before the March Jobs Report was released.
New York Fed President [Dear Guest/Member you can't see link before click here to register] said in a speech in New York last week that the coming three to six months would be a critical time for the Fed to assess the economy’s performance. Tax increases and federal spending cuts are starting to sink in and could slow economic growth. Meantime, hiring data have tended to be soft in the summer in recent months. That might be because of seasonal adjustment quirks in the figures or because of outside shocks like turmoil in Europe and natural disasters in Japan.
Bottom line: The economy has shown some real signs of improvement. Cyclical sectors like housing and autos have picked up. But Fed officials have been wary of pulling back too quickly, given the disappointments the economy has produced in the past during this recovery. Friday’s Report Reinforces that wariness.
Fed officials have said they would continue buying long-term Treasury and mortgage bonds until the employment outlook improves substantially. One Fed official this week raised the possibility of a job market strong enough by summer to begin pulling back from the program. But the Labor Department Report released Friday could raise doubts inside the Fed About how quickly the job market is healing and deflate that hope.
There are many yellow flags in Friday’s report. The monthly gain in payroll employment, at 88,000 in March, was the smallest since June. Measures of hiring in earlier months were revised up and worker hours extended a bit – good news — but the soft March reading suggests that a start-and-stop pattern in hiring data persists. And hourly earnings were up just 1.8% from a year earlier, meaning little upward momentum in household purchasing power or inflation. That comes after other reports this week — such as soft readings from the Institute for Supply Management — suggested economic activity might have lost some momentum last month.
Meantime, the Labor Department’s household survey, which measures labor force trends, was weak beneath the surface. The jobless rate edged down to 7.6% in March from 7.7% in February, but for all of the wrong reasons — workers leaving the labor force rather than getting jobs. The labor force participation rate, at 63.3%, fell to its lowest level since 1979.
The Fed official this week who spoke About beginning to wind down the Fed’s bond-buying programs this summer was John Williams, president of the Federal Reserve Bank of San Francisco. But his speech on Wednesday included lots of caveats:
“The latest economic news has been encouraging. But it will take more solid evidence to convince me that it’s time to trim our asset purchases. An important rule in both forecasting and policymaking is not to overreact to what may turn out to be just a blip in the data. But, assuming my economic forecast holds true, I expect we will meet the test for substantial improvement in the outlook for the labor market by this summer. If that happens, we could start tapering our purchases then. If all goes as hoped, we could end the purchase program sometime late this year.”
Friday’s Report wasn’t the solid evidence of labor market improvement that Mr. Williams would have been looking for. Other Fed officials aren’t in any hurry. “Continued accommodative policy, such as continuing our asset purchase program through this year, is an appropriate response to labor market scarring,” [Dear Guest/Member you can't see link before click here to register], the Boston Fed president, said in a speech Friday morning, even before the March Jobs Report was released.
New York Fed President [Dear Guest/Member you can't see link before click here to register] said in a speech in New York last week that the coming three to six months would be a critical time for the Fed to assess the economy’s performance. Tax increases and federal spending cuts are starting to sink in and could slow economic growth. Meantime, hiring data have tended to be soft in the summer in recent months. That might be because of seasonal adjustment quirks in the figures or because of outside shocks like turmoil in Europe and natural disasters in Japan.
Bottom line: The economy has shown some real signs of improvement. Cyclical sectors like housing and autos have picked up. But Fed officials have been wary of pulling back too quickly, given the disappointments the economy has produced in the past during this recovery. Friday’s Report Reinforces that wariness.
