Slowed growth in US job market affecting interest rate hikes


The monthly ADP National Employment Report released on Wednesday has suggested that the U.S. job market growth has begun to slow down. Is this a sign of more serious things to come?

After 5 months of solid growth, the drop in job creation during August came as a surprise to some (ADP predictions for August exceeded actual growth by 36,000 jobs). All thoughts of an interest rate hike in September were put on hold on the back of the report, with the hope that things would bounce back. However, a further slowdown of growth in September has left some commentators asking whether ADP’s October prediction of 182,000 created jobs is optimistic.

The National Employment Report measures changes in the number of US citizens employed within the private sector goods, service, construction, & manufacturing (‘nonfarm’) industries. It takes into account the anonymous payroll data of around 24 million employees in the U.S. It is thought that the market slow down within the large business sector (500+ employees) is the primary reason for the reduction in numbers of jobs created, particularly in financial and professional/business services. Perhaps unsurprising on the back of the recent instability of global markets, but the question now being asked is whether this recent slowdown in the jobs market has been a temporary blip or is it in fact a sign of larger global issues finally reaching U.S. shores. Official figures are due to be released by the Labor Department on Friday.

job marketHeavy loss of manufacturing jobs in September had a huge impact on the job market, and a reduction in these lay-offs during October may be taken as a positive sign, particularly as overall unemployment remains at its seven year low of 5.1%. Many economists say there is no need for immediate concern. Chief U.S. economist at Barclays – Michael Gapen – is quoted by the Wall Street Journal as saying “The global backdrop is soft and we’re not fully immune to that.” The latest shaky figures are a “soft patch” and these “… generally take more than a few months to get through.”

This positivity aside, there are still big concerns for companies across the U.S. who are having to deal with the strong dollar impacting exports, the slowdown of the Asian market (particularly of China), and the crash of oil prices. Maintaining growth over the coming months may not be easy.

If the Labor Department is able on Friday to report an actual growth in job numbers of at least 175,000 then there is a chance that an increase in interest rates will be considered before the end of the year. Many, however, suspect that the US Central bank may wait until March for these changes in order to maximize chances of current growth being maintained.

Since 2009 unemployment rates have been nearly halved, falling from 10% to 5.1%. Much of this growth has been enabled by the near-zero interest rates that have enabled and encouraged borrowing by businesses. Unless Friday’s figures provide a more positive picture than expected then perhaps no change is for the best.

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