The U.S. economy was limping in September, increasing the likelihood that the fiscal crisis in Washington slowed economic growth in October to a crawl.
American employers added 148,000 people last month, far fewer than the roughly 180,000 that most Wall Street analysts were expecting. Payrolls now have increased an average of 143,300 a month in the third quarter, compared with 182,300 over the previous three months and 207,300 in the first quarter.
The pace of hiring is slowing despite a year of extraordinary stimulus from the Federal Reserve Board, indicating the U.S. central bank has little choice but to forge ahead with its $85-billion-a-month asset-purchase program. That would be a shift: Over the summer, Fed officials appeared set to begin paring purchases by the end of the year.
But that was before politicians in Washington left non-essential services unfunded for 16 days this month and startled investors by using the prospect of default as leverage in their showdown.
The subtraction of billions of dollars from gross domestic product and the blow to confidence already was going to hurt the recovery. The lacklustre hiring figures suggest the economy had little momentum with which to push through the headwinds.
Some Fed officials have indicated that steady hiring of about 200,000 a month would be an appropriate threshold at which to curb quantitative easing, or QE.
The controversial policy under with the Fed seeks to keep downward pressure on interest rates by creating money to buy longer-term Treasury debt and mortgage-backed securities. Since employers had every reason to retreat this month, it stands to reason that, even if hiring regained strength in November, the Fed still will be inclined to wait until early next year for convincing evidence that the recovery is sound.
“Even before this report, we did not think the Fed was likely to taper before March,” economists at Royal Bank of Scotland said Tuesday in a report. “These data, which suggest the economy was soft heading into the shutdown, strengthen that case.”
The jobs report wasn’t entirely negative. When rounded, the unemployment rate dropped to 7.2 per cent, the lowest since November, 2008. A separate survey of households showed the number of people who reported to have jobs grew faster than a number of people who said they had entered the labour pool to look for work.
However, Fed chairman Ben Bernanke and other policy makers have made clear that they are skeptical the jobless rate is an effective gauge of the economy’s strength at the moment. The steady decline in the jobless rate, despite less-than-impressive gains in payrolls, is the result of a shrinking labour force. The percentage of the entire population with a job – at 58.6 per cent – was unchanged from August and lower than it was during the summer.
The household survey also reported a big gain in full-time employment of 691,000, which offset a decline in part-time employment, driving the largest quarterly gain for full-time jobs since the first quarter of last year, according to National Bank Financial.
Yet, there was little evidence that shift resulted in higher incomes. Aggregate hours worked gained only 0.9 per cent at annual rate through the third quarter, the weakest in more than a year, according to National Bank’s calculations.
“We doubt that Q4 will be much stronger due to the detrimental impact of the recent budget battle,” said Stéfane Marion, the Montreal-based bank’s chief economist, who used to study the U.S. labour market as an analyst at the Finance Department in Ottawa. “This means below trend GDP growth [of less than an annual rate of 2 per cent] and a Federal Reserve that will delay QE tapering until early next year.”