WASHINGTON -- The top-line number in the August jobs report was roughly in line with expectations, but economists digging into the details Friday saw bad signs that could give Federal Reserve policymakers concerns about reducing their stimulus efforts this month.
“The dirt is in the details, and these are very dirty details,” said Diane Swonk, chief economist at Mesirow Financial. “It’s going to muddy the debate about what the Fed does.”
The 169,000 net new jobs added to the economy in August was near the consensus estimate of 175,000. But economists were disappointed by other data, which weakened the overall report.
The Labor Department sharply cut the growth figures for the previous two months by a total of 74,000 jobs. That included resetting July’s level at a paltry 104,000 net new jobs, the economy’s worst performance since June 2012.
Those downward revisions mean the average job creation from June through August was 148,000, well below the 184,000 pace over the previous year.
And while the unemployment rate fell, it did so for the wrong reason.
The rate ticked down in August to 7.3%, the lowest level since December 2008. But it was largely because more discouraged people left the workforce.
The labor force participation rate fell for the third straight month. The 63.2% rate in August was the worst since 1978.
“It’s very important to recognize that once again the decline in unemployment did not come the way you want it to -- by more people getting jobs. It came by more people giving up the search and leaving the labor market,” said Jared Bernstein, senior fellow at the Center on Budget and Policy Priorities and the former chief economic advisor to Vice President Joe Biden.
Fed officials have said they would closely analyze the incoming economic data, particularly concerning the labor market, before deciding when to start tapering their $85 billion in monthly bond purchases.
While many analysts believed the Fed would decide to start those reductions at its Sept. 17-18 meeting, Bernstein said the August jobs report might force a delay.
“The labor market remains stuck in second gear and …. the last thing you want to try to be doing in second gear is drive up a hill,” Bernstein said. “The Fed should strongly reconsider tapering in September.”
Swonk said it was now “a 50/50 flip of a coin chance” that the Fed would start those reductions this month.
“Looking at the revisions was like getting punched in the gut,” she said.
The changes for June and July raise a question about whether August’s numbers will be reduced as well, Swonk said.
In remarks prepared before the jobs report was released, Charles Evans, president of the Federal Reserve Bank of Chicago, didn’t say when the Fed should start reducing its bond purchases.
But Evans, a voting member of the policy-setting Federal Open Market Committee, cited the low labor force participation rate as a reason why it was too soon to stop the purchases altogether.
Although “the labor market has definitely improved” since the Fed began the program a year ago, he noted in a speech in Greenville, S.C., that “an unusually high number of productive, potential workers are not even looking for jobs right now.”
“It is not yet time to remove accommodation,” Evans said. “I expect our policies to remain highly accommodative for some time to come.”
Stuart Hoffman, chief economist at PNC Bank, said July’s weak job growth could be an anomaly. But he said the Fed might wait for more data before deciding to start gradually pulling back on its stimulus efforts.
“They’re not so screaming strong that a September taper is baked in the cake,” he said of the August jobs figures. “But these are not weak numbers.”
Hoffman noted that two key gauges -- average hourly earnings and the average workweek -- increased in August.
He said the Fed officials might wait until October to get more data before deciding to start reducing its bond purchases.
“I think it’s a matter of when, not if,” Hoffman said. “There’s enough data the Fed has gotten...to say it’s time to taper. Whether it’s in two week or eight weeks, in the grand scheme of things, it doesn’t matter.”