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Are bad jobs numbers good enough for Fed action?

Federal Reserve Chairman Ben Bernanke

Lucas Jackson/Reuters

U.S. payrolls numbers for August were ugly – and shocking, given the relatively upbeat economic reports flowing out of the United State recently.

According to Bloomberg News, economists had been expecting 130,000 job gains last month, and the unpublished consensus may have been even higher given Thursday's strong private sector report from ADP. However, the economy generated just 96,000 jobs. And even though the unemployment rate fell to 8.1 per cent from 8.3 per cent, the downward move was because people had given up looking for work.

The stock market, though, continues to see bad news as good news. The S&P 500 was up 0.3 per cent in mid-morning trading on Friday, and that comes after Thursday's rocking rally.

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That rally was fuelled by a plan from the European Central Bank to buy bonds of financially distressed euro zone countries – and it is more than likely that Friday's upward move is being driven by hopes that the jobs numbers will push the U.S. Federal Reserve to take some stimulus action of its own.

Indeed, just about every report on Friday put the disappointing jobs numbers into a bad-is-good perspective. Here are several samples.

James Marple, senior economist, Toronto Dominion Bank: "Not only does this report fail to meet the Federal Reserve's criteria for a 'substantial and sustainable strengthening in the pace of the economic recovery,' it is downright dismal. Sub-100K job growth is likely enough to convince the Federal Reserve to announce a further round of asset purchase at their meeting next week."

Jim O'Sullivan, chief U.S. economist, High Frequency Economics: "Combined with other data, including claims and the ISMs, we believe the trend is still at least strong enough to prevent the unemployment rate from rising, and if anything momentum has been up a little again, although that is clearly not good enough from the Fed's perspective. The data will encourage the FOMC to act again at next week's meeting."

Matthieu Arseneau, senior economist, National Bank of Canada: "Add a little productivity to this figure and GDP will still come in below 2 per cent this quarter. Given the emphasis that Mr. Bernanke has put on labour markets in recent days, this general weakness of the August employment report means that Fed will proceed to downgrade its forecast in September. We are still on track for more QE (if not September, than later this fall).

Sal Guatieri, senior economist, BMO Nesbitt Burns: "Look for more Fed easing next week, likely by extending the forward rate guidance into 2015."

Paul Ferley, assistant chief economist, Royal Bank of Canada: "Fed Chairman Bernanke in his Jackson Hole speech last week signaled a preparedness to introduce additional ease if conditions warranted. Thus next week's FOMC could see the central bank extending the forward guidance (as to the maintenance of the current range for Fed funds) to 'sometime in 2015' from the reference to 'late 2014' as indicated following the last FOMC in August. The disappointing August job gain will likely prompt discussion at the FOMC about the need for another round of asset purchases."

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