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    Weak jobs report adds to uncertainty on Fed’s next move

    A job-seeker completed an application at a career fair in July.
    Mark Makela/Reuters/File
    A job-seeker completed an application at a career fair in July.

    NEW YORK — Despite a disappointing jobs report Friday that raised fresh questions about the nation’s economic strength, analysts say they still believe the Federal Reserve will start pulling back on its stimulus program in a few weeks.

    The Labor Department’s snapshot of the job market in August had several discouraging details underneath a relatively mundane headline number, which showed the economy added an estimated 169,000 jobs. Perhaps the most striking was a plunge in the share of Americans who are either working or looking for work, which fell to its lowest level since 1978.

    “If you had a more optimistic view of the economy, which I think the Fed does, this should give you some pause,” said Joshua Shapiro, chief US economist at MFR. “It’s been a real struggle here in the labor market.”


    At the same time, earlier estimates of job growth in July and June were revised sharply downward, and hiring over the summer months was largely driven by low-wage sectors like retail, food services, and health care.

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    Still, economists said they believed that Fed governors would find enough bright spots in this report to justify scaling back their monthly purchases of long-term Treasury bonds and mortgage-backed securities — measures that help push down long-term interest rates — after their next meeting Sept. 17 and 18.

    “There’s just barely enough in that report and in other forward-looking indicators we’ve seen to give Fed governors the confidence they need on the 18th to taper,” said Ian Shepherdson, the chief economist at Pantheon Macroeconomics.

    “For the record, I don’t think they should, given the risks posed by Syria and the impending fiscal chaos in Washington,” he said, noting the expected congressional battles over the debt limit and spending measures.

    Investors seemed to agree, with bond yields dipping slightly after the jobs report came out. As for stocks, the Standard & Poor’s 500-stock index and the Dow Jones industrial average both closed about where they began Friday.


    The number of payroll jobs added in August was just shy of the average pace of hiring over the past year, and the unemployment rate edged down to 7.3 percent from 7.4 percent. Unemployment, however, fell for the “wrong reasons,” Shapiro said: because people dropped out of the labor force and so were no longer counted as unemployed, and not because more unemployed people found jobs.

    The jobless rate is now edging close to the 7 percent level that the Federal Reserve chairman, Ben S. Bernanke, had identified as the Fed’s target for ending its asset purchases altogether around the middle of next year. For several months, Fed governors have been saying that the Fed expected to begin reducing the monthly purchases “later this year,” which has been widely interpreted to point toward beginning the shift as early as September.

    Charles L. Evans, president of the Federal Reserve Bank of Chicago and one of the more vocal proponents of highly accommodative monetary policy, used this phrasing in a speech Friday, suggesting he was open-minded about the “exact pattern of the reduction in purchases that we eventually take.”

    The Fed’s more hawkish members have been more explicit about their desired policy moves. Esther L. George, president of the Federal Reserve Bank of Kansas City and a leading critic of the asset purchases, said Friday that the Fed should cut its bond buying to $70 billion a month in September, from the current $85 billion a month, split between Treasuries and mortgage bonds.

    “It is time to begin a gradual — and predictable — normalization of policy,” she said.


    Despite the generally dismal picture, there were some bright spots in Friday’s jobs report, including a tick upward in the average number of hours worked and a 5-cent gain in hourly wages for private sector workers. Over the past year, average hourly earnings have risen by 52 cents, or 2.2 percent, before adjusting for inflation.