The US Department of Labor’s jobs report for last month may have proved US Federal Reserve Chairman Ben Bernanke right after he warned that payroll gains might slow as companies adjust staffing for a period of moderate growth.
Employers in the US added 120,000 jobs last month, the fewest in five months, the report showed on Friday. The unemployment rate fell to 8.2 percent from 8.3 percent the month before as people stopped looking for work. Last month’s report followed the best six-month streak of job growth since 2006.
“Chairman Bernanke should be putting out the world’s biggest ‘I told you so,’” said Phillip Swagel, an economist at the University of Maryland and a ex-assistant Treasury secretary in former US president George W. Bush’s administration. “It must give the Fed some comfort that they continue to have this accommodative stance.”
The data probably won’t trigger a decision to buy more assets when Fed policy makers next meet on April 24 and April 25, nor will it alter their commitment to keep the benchmark lending rate around zero until late 2014, said John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina.
At the same time, he said, disappointing labor reports this month and next month could help build a case for further easing at the June meeting of the Federal Open Market Committee, headed by Bernanke.
“When you look at employment per se, it’s not up to the level he wants to see,” Silvia said. “It’s very difficult for the Fed to say 8.2 percent, that’s good enough.”
More insight into the Fed’s response to the data will come next week when policymakers discuss the economic outlook. Vice Chairperson Janet Yellen will speak in New York on Wednesday and William Dudley, president of the Federal Reserve Bank of New York, will speak in Syracuse on Thursday. Bernanke is scheduled to discuss financial stability tomorrow.
In a speech on March 26, Bernanke said recent strong job gains may be a “reversal of the unusually large layoffs that occurred during late 2008 and over 2009.”
If that is the case, he said, then “significant improvements in the unemployment rate will likely require a more-rapid expansion of production and demand from consumers and businesses, a process that can be supported by continued accommodative policies.”
To further reduce the unemployment rate by one, two, or even three percentage points, “we need to start thinking of not just having growth of 2 percent or 2.5 percent, but growth of 4 percent or 5 percent,” said Betsey Stevenson, former chief economist at the Department of Labor and a visiting assistant professor at Princeton University.
The US economy expanded at a 3 percent annual rate in the final three months of last year, helping boost job growth to an average monthly gain of 246,000 from December through February. Growth may slow to 2 percent in the first quarter, according to the median estimate in a Bloomberg News survey of economists.
US central bankers have held the benchmark lending rate near zero since 2008 and purchased US$2.3 trillion in bonds to spur growth. Assets on the Fed’s balance sheet now total US$2.9 trillion, compared with $925 billion at the start of 2008.
Fed officials are speaking and acting with more caution. Rather than pump the balance sheet up further in September, they opted instead for a program, dubbed Operation Twist, to shift the portfolio into longer-term assets.