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A Mixed Jobs Report for the Fed to Argue Over

Mohamed A. El-Erian is a Bloomberg View columnist. He is the chief economic adviser at Allianz SE and chairman of the President’s Global Development Council, and he was chief executive and co-chief investment officer of Pimco. His books include “The Only Game in Town: Central Banks, Instability and Avoiding the Next Collapse.”
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Earlier this week, I argued that the U.S. jobs report for August would have an unusually large influence on the Federal Reserve as it considers when to hike rates . The data released Friday did not disappoint and are certain to fuel heated discussion both within and outside the central bank.

The economy generated 151,000 jobs in August. Although this number was short of consensus expectations of 180,000, the pace of employment growth should end the debate about whether the notably weak report for May was an aberration. It was. The solid showing also confirms that the U.S. remains a world leader in employment creation, with more than 14.5 million new jobs since the depth of recession in 2009.

QuickTake The Fed Lifts Off, Barely

Wage growth is still a concern, however. After the solid 0.3 percent increase in July, average wages grew by just 0.1 percent in August, bring the annual rate to 2.4 percent, from 2.6 percent in July, even though the unemployment rate remained unchanged, at 4.9 percent. 

The participation rate, which is heavily influenced by the pace of re-entry into the labor force of discouraged workers, remained unchanged at 62.8 percent, uncomfortably close to multi-decade lows. That accentuates concerns about structural impediments to future potential and, therefore, the effectiveness of monetary policy. Similarly, the employment-to-population ratio is stuck at 59.7 percent, also raising questions about the remaining slack in the labor market. 

Taken as a whole, the August jobs report reinforces the notion that, while still short of economic lift-off, a robust labor market continues to underpin consumption as a consistent driver of U.S. and global growth. This is good news as, domestically, business investment and productivity remain disappointing and, internationally, too many countries face complex structural and political headwinds. The implications for the Federal Open Market Committee meeting this month are more ambiguous.

The mixed August report puts Fed policymakers in a tricky position. The data are not uniformly strong enough to ensure a September interest rate hike. But they are sufficiently solid to make a credible case for a hike, especially given the mounting concerns about the unintended consequences and the collateral damage caused by prolonged ultra-low interest rates.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

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