Hilsenrath’s Take: Fed In No Hurry Unless Payroll Headline is Robust
After registering weak growth in output in the second quarter, the economy will need to produce some positive economic surprises to get the Fed to move quickly toward a rate rise. A robust payroll headline would help.
The magic number in Friday’s jobs report is 200,000. If the Labor Department reports that employers expanded payrolls by 200,000 or more in July then that will likely keep alive the possibility of a Federal Reserve interest rate increase at its September policy meeting. Something much below that threshold will likely keep the Fed on a wait-and-see path, inclined to raise rates this year but in no hurry to signal an imminent move barring some other positive economic surprises.
A number above 200,000 would beat the three-month average growth rate of 147,000 and suggest the economy is growing fast enough to continue reducing slack in labor markets. A number much below that level would confirm payroll growth has slowed in 2016 and the Fed can be patient before moving to another increase in rates.
Analysts surveyed by The Wall Street Journal projected the Labor Department will report payrolls grew 179,000 in July, just a little shy of the threshold and near the six-month average growth rate of 172,000. A consensus number would keep the Fed looking toward raising rates but feeling not-so hurried about doing so.
That view was articulated by New York Fed President William Dudley in a speech earlier in the week. He said it is premature to rule out a rate increase this year and warned the market against complacency. “Even 150,000 job gains per month would be consistent with gradually using up any remaining slack present in the U.S. labor market,” he said, adding the Fed needs to be patient because of downside risks to the economy.
Of course, Fed policy can’t be boiled down to just one number in one economic report. Fed officials look at a wide range of economic data. The unemployment rate is estimated to have moved down to 4.8% in July, another sign of reduced labor market slack that gives the Fed an incentive to act. Fed Chairwoman Janet Yellen also looks closely at wages, labor-force participation and broader measures of joblessness. Moreover, the Fed will have another jobs report in September to peruse and a range of other economic data to assess before its September 20-21 meeting.
After registering weak growth in output in the second quarter, the economy will need to produce some positive economic surprises to get the Fed to move quickly toward a rate rise. A robust payroll headline would help.