The surprising weakness in the August jobs report leaves Bernanke & Co. little choice but to cut rates at the September FOMC meetingThe stunning weakness in the U.S. nonfarm payroll figure for August revealed in the month's employment report, released Sept. 7—and the downward revisions to job growth in July and June—is a likely game-changer for the Federal Reserve's strategy in managing the credit crisis and its potential impact on U.S. growth. The central bank's internal desire to avoid reductions in the Fed funds rate target will likely need to be shelved for now.
The Fed would probably appear too aloof if it passed through the Sept. 18 Federal Open Market Committee meeting without a cut in the target. We still suspect that Ben Bernanke & Co. is loath to cut the Fed funds rate target, but they can clearly raise their perceived assessment of economic risks sufficiently to justify a rate reduction, and they would face severe criticism if they ignored the August jobs report.
And the report was surprisingly weak, clearly demonstrating that economists and investors had misjudged the risks in the report. Nonfarm payrolls fell 4,000 in August from revised gains of 68,000 in July and 69,000 in June (previously they were 92,000 and 126,000, respectively), for a net revision of –81,000. The unemployment rate was steady at 4.6%, from 4.6% in July. Average hourly earnings were up 0.3%, which was the same as in July. The average workweek was stable at 33.8 hours.
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