Did the Latest NFP Report Crush Hopes of a Fed Rate Hike?

So much for those labor market improvements that Fed officials had been talking about! The September NFP report turned out to be a huge letdown, leaving dollar bears to paint the forex town red. Economic analysts even pointed out that the dismal employment readings might be enough for the FOMC to think twice about hiking interest rates this year.

Just how bad was the latest jobs report?

The U.S. economy added only 142,000 jobs in September, way below the estimated 201,000 increase in employment and the average monthly hiring gains in the past 18 months. To make things worse, previous NFP reports suffered downgrades amounting to 59,000 in negative revisions.

US NFP

While the unemployment rate managed to hold steady at 5.1%, a quick review of the underlying components reveals that labor force participation slumped from 62.6% to 62.4% – its lowest level in nearly four decades. This suggests that more Americans probably exited the labor force and have given up on their job hunt.

Looking across the various economic sectors shows that gains were actually reported among most industries, except for manufacturing and mining. As it turns out, these sectors are already starting to feel the weight of tumbling oil prices and the reduction in demand for energy exports, mostly spurred by the slowdown in China.

To top it all off, the average hourly earnings figure indicated that wage growth was non-existent during the month, as it printed a flat reading instead of the projected 0.2% uptick. The average work week ticked down from 34.6 hours to 34.5 hours, hinting that employees are more than able to handle their current workload and that employers aren’t under pressure to increase hiring just yet.

So does this mean we won’t see a Fed rate hike this year?

If Uncle Sam can’t pick up the pace anytime soon, Facebook’s internet-beaming satellites might lift off much sooner than the Fed. Then again, the U.S. still has a couple of employment reports up for release before the end of the year so if the labor market is able to make a solid comeback for October and November, an interest rate hike for 2015 might still be in the cards.

For now, it looks like forex junkies have been pricing against a liftoff in the October FOMC statement, resulting to a reduction in long dollar positions. Traders might now turn their focus to the mid-December Fed policy meeting, paying extra close attention to the next set of U.S. economic reports to gauge whether a jobs rebound is likely or not.

Based on our running poll on when the FOMC might hike rates, it seems that most of our readers believe that the liftoff will be delayed until next year. Don’t be shy to cast your votes as well!

  • Alfonso Munoz

    Is there any other real reason for not rising rates? Inflation not picking up but that can be mainly because costs are going down (cheap oil), but GDP growth is going up, employment is reaching full employment (would it be around 4%?). I’m quite a rookie about macro so I don’t understand yet the relation, but it looks to me that there is too much debt spread around the globe and it looks like a hike could shake a VERY WEAK card house, so weak that it could start a massive snowball that would collapse emerging market economies and after them the investment banks that have too many derivatives based on those economies.

    Does it make sense? I’m trying to find the relation between Fed interest rates and the debt from other countries.

    • You’re onto something here! Gov’t debt and financial standings are also important factors in monetary policy decision-making, although these didn’t seem to be highlighted by the FOMC compared to other central banks (RBA, ECB) since Fed officials seem pretty confident about the US fiscal situation.

      Of course other economies are more concerned about the potential impact of a Fed rate hike on their own economies and debt, as their performance isn’t as strong as that of the US. You’ve made really good point about a rate hike potentially shaking a very weak card house, which also probably explains why the Fed isn’t too eager to act.

  • Pingback: Forex Setup: GBP/USD Reversal in the Works?()

  • Pingback: Forex Updates - Monthly Economic Review: The United States()

  • Pingback: Forex - Why the Sept FOMC Minutes Led to a Dollar Selloff()

  • Pingback: Top Forex Market Movers of the Week (Oct. 5-Oct. 9, 2015)()

  • Pingback: Forex - FOMC Statement: December Rate Hike Still on the Table?()