Watching and waiting.

Photographer: Andrew Harrer/Bloomberg

Mixed Jobs Report Won’t Be a Tiebreaker for the Fed

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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There had been hope the U.S. jobs report for September released Friday would show faster wage growth and a rising labor participation rate. It had both, though the data was otherwise mixed.

After the disappointing drop for August, wage growth picked up to an annualized rate of 2.6 percent in September. Along with an increase in the number of previously discouraged workers re-entering the labor force, this uptick provides a stronger basis for higher and more inclusive growth.

QuickTake Monthly U.S. Jobs Report

Job creation, at 156,000, fell a little short of market expectations of about 170,000 to 180,000, with the major shortfalls showing up in the government sector and construction. Meanwhile, the unemployment rate inched up to 5 percent.

Revisions to previous reports also were somewhat disappointing. Based on the adjustments of previous years, many had hoped for a notable upward review of the August estimate of 151,000 jobs created. Instead, the somewhat tepid addition of 16,000 was more than offset by a 23,000 downward revision to the July estimate.

The report continued to point to significant disparities in the fortunes of various segment of the population, particularly in relation to educational levels. The unemployment rate for those without a high school diploma was 8.5 percent; for those with college degrees it was a full 6 percentage points lower.

Putting all this together confirms that there is still scope for progress in strengthening the U.S. labor market. But the shortfalls are far from overwhelming. If anything, the market is robust overall, and it is the envy of many other countries.

The six-month average for job creation remains around 190,000, a healthy number for this stage of the cycle and given that almost 15 million jobs have been created in the last few years. The uptick in the unemployment rate has a positive underpinning: in particular, an increase in the participation rate to 62.9 percent from 62.8 percent for August.

What about the policy implications?

By itself, this report won't be decisive in tipping what is still a finely balanced economic case for a change in Federal Reserve policy. The potential tiebreaker will come from elsewhere – specifically, the extent to which Fed officials worry about the side effects of prolonged reliance on unconventional monetary policy, including a growing risk of future financial instability. If they are as concerned as I think they should be, the response would be a rate hike as part of what would remain a shallow cycle overall with an ending point well below historical averages.

The jobs reports has more important implications for other policy-making bodies, particularly when it comes to lagging fiscal and structural reform measures. If Congress could enable a more balanced macroeconomic policy stance, future jobs reports would likely see better wage growth, a higher participation rate and more dynamic job creation.

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

To contact the author of this story:
Mohamed A. El-Erian at melerian@bloomberg.net

To contact the editor responsible for this story:
Max Berley at mberley@bloomberg.net