Mixed data on US job situation makes Fed’s task harder

The US added 169,000 jobs in August in a mixed employment report that will complicate the US Federal Reserve's decision this month on whether to reduce its massive financial stimulus programme.

Separate data in the UK and Ireland also painted a somewhat less upbeat picture than some recent releases.

Although headline jobs growth was only slightly below expectations of 180,000, June and July estimates were revised down by a total of 74,000, while the percentage of the population in the labour force fell to its lowest level since August 1978, at 63.2 per cent.

The lower number of Americans looking for work drove down the unemployment rate from 7.4 per cent to 7.3 per cent. That leaves the Fed with a conundrum: unemployment is closer to its goal of a “substantial improvement in the labour market” but for the negative reason that fewer people are seeking jobs.

Labour market
The Fed will have to decide whether the report reflects a weakening labour market – in which case it may want to delay a taper of asset purchases – or whether it is further evidence that the unemployment rate can keep coming down despite feeble overall growth. In that case it may choose to go ahead with tapering in September.

Most analysts said they still expected the Fed to reduce asset purchases because the report was not that weak, and there are other encouraging signs of the economy picking up steam.

“This was a weak report, but it does not change the tapering call because it was not weak enough and there is a lack of corroborating evidence across the broader economic landscape to suggest a new lower jobs trend has emerged,” said Eric Green, at TD Securities in New York.

In British, industrial output was flat in July and there was a marked deterioration in the trade balance, official data showed yesterday, taking some of the shine off recent strong economic data.

Meanwhile, manufacturing data in Ireland pointed to a fall in activity in July, declining by almost 9 per cent.

Pharmaceutical sector
Both the traditional and the modern sector shrank compared with June, with a marked fall-off in the modern sector as the pharmaceuticals industry was hit by patent expiries.

According to the latest data from the Central Statistics Office, manufacturing volume in the three-month period from May to July was up 1.7 per cent compared to the first quarter of the year.

Output in the UK’s industrial sector – which makes up about one sixth of Britain’s economy – had been expected to edge up by 0.1 per cent, according to a Reuters poll.

Separate figures showed Britain’s goods trade deficit widened to £9.85 billion in July after narrowing sharply in June. Including services, in which Britain traditionally runs a surplus, the trade deficit widened to £3.085 billion. That was more than double its level in June and the worst reading since October 2012. – Copyright The Financial Times Limited 2013/Reuters