America's latest jobs numbers suggest that the Federal Reserve should hold off raising interest rates
By S.K. | LONDON
ALL work and low pay makes Uncle Sam a dull boy. Today's new job-market figures will not lift his spirits. Although new data published by the Bureau of Labour Statistics showed that lots of new jobs were created in June, wage growth that seemed to be blossoming earlier in the year has ground to a halt. Average hourly earnings that month, compared to the same period the previous year, were exactly flat—and below market expectations of a 0.2% rise.
Nevertheless, the number of jobs created last month—223,000—is still a solid performance. While it is a bit below the average monthly increase of 250,000 over the past year, the American economy has not yet run out of steam. But there were some other causes for concern. Revisions revealed that the previous two months of bumper job growth were lower than previously thought, by around 60,000 jobs in April and May combined. And although the headline unemployment rate fell, from 5.5% last month to just 5.3%, the labour-force participation rate fell by more.
The numbers also show plenty of underemployed Americans,who would like to increase their hours. In June there were 6.5m people who were working part-time, but would like to work more hours, little changed from a year ago. Janet Yellen has already mentioned that this is a strong indicator that there is still some spare capacity in the economy. A new paper, published last month by the Federal Reserve Bank of San Francisco, suggested that some of this might be a permanent change in demand for workers in America, for example as firms shifted to part-time employment to reduce their costs. But the authors concluded that the main cause was temporary weakness in the economy.
These figures will weigh heavy on economists at the Fed. Raise interest rates too quickly, and they risk choking off America's recovery. Wait too long, and the economy will overheat and inflation will start edging upwards, beyond the target of 2%. The latest figures show inflation of just 0.4%, but largely because of temporary factors. Today's jobs figures suggest that the American economy is still warming up, and has capacity to create work. The disappointing wage growth figures imply that bulging pay packets will not cause inflationary pressure any time soon.
This might not be enough to discourage the more hawkish economists at the Fed, who have been angling for an interest rate rise sooner rather than later to stave off the threat of inflation. The current consensus seems to be that there will be a rate hike this year, with the only question left of how soon it might come. But today's figures suggest that the consensus might have been formed too soon. Janet Yellen has said that she will wait until it looks like the labour market has recovered. Today's figures suggest that moment has not yet come.
