Jobs data will weigh on Fed decisions

The release of the latest jobs numbers showed that while unemployment declined, the government shutdown would have an affect on the results in the coming months. What was clear from several news stories was that the Federal Reserve Board will likely have to continue its stimulus program.

Here’s the story from the Wall Street Journal:

The delayed September jobs report clouded the outlook for the U.S. economy, creating a new obstacle for the Federal Reserve to wind down its controversial bond-buying program.

U.S. employers added 148,000 jobs during the month, well below the pace of gains seen in the first half of the year. The unemployment rate, obtained from a separate survey of households, ticked down to 7.2% from August’s 7.3% and offered a glimmer of hope as the drop was due to more people finding work rather than leaving the labor force.

The Labor Department’s monthly job report helped assure investors the Fed will leave its bond-buying program unchanged at its meeting next Tuesday and Wednesday. The weak payroll gains also likely raised the bar for action at the Fed’s mid-December meeting, when central-bank officials may be struggling to assess the economy’s course after months of data muddied by the federal government’s 16-day shutdown.

The prospect of the Fed staying the course on its easy-money policies through year’s end sent the Dow Jones Industrial Average to a one-month high, market participants said. The blue-chip index gained 75.46 points, or 0.49%, to 15467.66 and is once again nearing record territory, and the Standard & Poor’s 500 finished at a fresh record close, up 10.01 points, or 0.57%, at 1754.67. Treasury yields sank to a three-month low on the report. The yield on the 10-year Treasury, which moves in the opposite direction of the price, fell to 2.512%.

The New York Times added this context to the numbers and how the government shutdown will likely add to the pain:

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.

Bloomberg reported that an advisor to President Obama said the shutdown hurt business and consumer confidence, which doesn’t bode well for the economic outlook:

The partial government shutdown this month trimmed 0.25 percentage point from fourth-quarter economic growth and cost the U.S. 120,000 jobs in October, President Barack Obama’s chief economic adviser said.

An analysis of daily and weekly economic data through Oct. 12 showed weakness in such areas as retail sales, economic confidence and mortgage applications, some of which was directly related to the 16-day shutdown, said Jason Furman, head of the Council of Economic Advisers.

“This all just really underscores how unnecessary and harmful the shutdown and the brinkmanship was for the economy, why it’s important to avoid repeating it,” Furman said at a White House briefing today.

The administration released a report on the CEA’s findings today, the same day a separate Labor Department report showed that job growth slowed in the month before the shutdown began. The White House may use the projections to bolster its bargaining position as talks get under way with Congress to meet a December deadline for a revenue and spending plan.

The White House figures “may prove to be a little bit conservative,” said Russell Price, senior economist at Ameriprise Financial Inc. (AMP) in Detroit. He forecast the shutdown would shave as much as 0.5 percentage point from fourth-quarter gross domestic product.

“You had a precipitous decline in business confidence and consumer confidence,” he said.

The decline of consumer and business confidence will likely be the lasting outcome from the government shutdown. By pushing making decisions until 2014, there is no real resolution to the political problems, making it hard for people to get a true gage of where the economy is going. That could make it hard for employers to ramp up hiring in the New Year, keeping unemployment low for the foreseeable future.