US non-farm payrolls fall short of expectations

Even though US non-farm payrolls rise less than expected in July, it still sets solid ground for Federal Reserve to hike interest rates in September

Photo by: Reuters
Photo by: Reuters

The US Federal Reserve is watching the labour market closely before taking a move to tighten its monetary policy, the most critical data prior to the Fed's meeting in September 16-17 is July and August.

The Labour Department announced on Friday that US employers added 215,000 jobs last month, down from the revised 231,000 gain in June as the unemployment rate stayed stable at 5.3 percent.  

The unemployment rate fell to 5.3 in June, the lowest since April 2008, thus the reading at 5.3 percent is not far from the 5.0 percent to 5.2 percent range that most Fed officials consider consistent with full employment.

Increases in more than 200,000 jobs are considered a positive trend and suggest that the Fed is on track to hike interest rates this year in September.

The Fed has kept its overnight rates at historically low levels since December 2008.

The slowdown in the economy has left financial markets doubting whether or not the Fed will raise rates this year. Some believe the Fed could wait until 2016 for the rate hike.

However, on July 24, the Fed mistakenly published a forecast stating that staff economists expect a quarter-point US interest rate hike this year, a gaffe that drew criticism about its ability to keep secrets. The rate forecast was included with a series of bearish projections on US economic growth and inflation that were presented to policymakers at their June 16-17 meeting.

Economic data has been improving since May. Consumer spending, housing, job market and consumer confidence posted a decisively strong tone, suggesting the second quarter growth to be stronger than expectations. While economists expect the US economy to grow above 3 percent in the second quarter, the economy contracted 0.2 percent in the first quarter.

TRTWorld and agencies